Nature and scope of managerial economics ppt @ mba 2009

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Nature and scope of managerial economics ppt @ mba 2009

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Nature and scope of managerial economics ppt @ mba 2009

  1. 1. Nature and Scope ofManagerial Economics
  2. 2. Chapter 1 OVERVIEW How Is Managerial Economics Useful? Theory of the Firm Profit Measurement Why Do Profits Vary among Firms? Role of Business in Society Structure of this Text
  3. 3. Chapter 1 KEY CONCEPTS managerial economics economic profit theory of the firm profit margin expected value return on stockholders maximization equity value of the firm frictional profit theory present value monopoly profit theory optimize innovation profit theory satisfice compensatory profit theory business profit normal rate of return
  4. 4. How Is Managerial Economics Useful? Evaluating Choice Alternatives  Identify ways to efficiently achieve goals.  Specify pricing and production strategies.  Provide production and marketing rules to help maximize net profits. Making the Best Decision  Managerial economics can be used to efficiently meet management objectives.  Managerial economics can be used to understand logic of company, consumer, and government decisions.
  5. 5. Theory of the Firm Expected Value Maximization  Owner-managers maximize short-run profits.  Primary goal is long-term expected value maximization. Constraints and the Theory of the Firm  Resource constraints.  Social constraints Limitations of the Theory of the Firm  Alternative theory adds perspective.  Competition forces efficiency.  Hostile takeovers threaten inefficient managers.
  6. 6. Profit Measurement Business Versus Economic Profit  Business (accounting) profit reflects explicit costs and revenues.  Economic profit.  Profit above a risk-adjusted normal return.  Considers cash and noncash items. Variability of Business Profits  Business profits vary widely.
  7. 7. Why Do Profits Vary Among Firms? Disequilibrium Profit Theories  Rapid growth in revenues.  Rapid decline in costs. Compensatory Profit Theories  Better, faster, or cheaper than the competition is profitable.
  8. 8. Role of Business in Society Why Firms Exist  Business is useful in satisfying consumer wants.  Business contributes to social welfare Social Responsibility of Business  Serve customers.  Provide employment opportunities.  Obey laws and regulations.
  9. 9. Structure of this Text Objectives  Understand usefulness of economics in describing managerial behavior.  Understand how economics can be used to improve managerial decisions.  Appreciate vital role of business in society.

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