0
 
 
Managerial Economics Defined <ul><li>The application of economic theory and the tools of decision science to examine how a...
 
Economic Theory <ul><li>Microeconomics </li></ul><ul><ul><li>Study of the economic behavior of  individual  decision-makin...
Decision Sciences <ul><li>Mathematical Economics </li></ul><ul><ul><li>Expresses and analyzes economic models using the to...
Economic Methodology <ul><li>Economic Models </li></ul><ul><ul><li>Abstract from details </li></ul></ul><ul><ul><li>Focus ...
 
Theory of the Firm <ul><li>Combines and organizes resources for the purpose of producing goods and/or services for sale. <...
Value of the Firm The present value of all expected future profits
Alternative Theories <ul><li>Sales maximization </li></ul><ul><ul><li>Adequate rate of profit </li></ul></ul><ul><li>Manag...
Definitions of Profit <ul><li>Business or Accounting Profit:  Total revenue minus the explicit or accounting costs of prod...
Theories of Profit <ul><li>Risk-Bearing Theories of Profit </li></ul><ul><li>Frictional Theory of Profit </li></ul><ul><li...
Social Function of Profit <ul><li>Profit is a signal that guides the allocation of society’s resources. </li></ul><ul><li>...
Business Ethics <ul><li>Identifies types of behavior that businesses and their employees should not engage in. </li></ul><...
The Changing Environment of Managerial Economics <ul><li>Globalization of Economic Activity </li></ul><ul><ul><li>Goods an...
 
Contd
(contd)
Appendix to Chapter 1
Law of Demand <ul><li>A decrease in the price of a good, all other things held constant, will cause an increase in the qua...
Change in Quantity Demanded Quantity Price P 0 Q 0 P 1 Q 1 An increase in price causes a decrease in quantity demanded.
Change in Quantity Demanded Quantity Price P 0 Q 0 P 1 Q 1 A decrease in price causes an increase in quantity demanded.
Changes in Demand <ul><li>Change in Buyers’ Tastes </li></ul><ul><li>Change in Buyers’ Incomes </li></ul><ul><ul><li>Norma...
Change in Demand Quantity Price P 0 Q 0 Q 1 An  increase in demand  refers to a rightward shift in the market demand curve.
Change in Demand Quantity Price P 0 Q 1 Q 0 A  decrease in demand  refers to a leftward shift in the market demand curve.
Law of Supply <ul><li>A decrease in the price of a good, all other things held constant, will cause a decrease in the quan...
Change in Quantity Supplied Quantity Price P 1 Q 1 P 0 Q 0 A decrease in price causes a decrease in quantity supplied.
Change in Quantity Supplied Quantity Price P 0 Q 0 P 1 Q 1 An increase in price causes an increase in quantity supplied.
Changes in Supply <ul><li>Change in Production Technology </li></ul><ul><li>Change in Input Prices </li></ul><ul><li>Chang...
Change in Supply Quantity Price P 0 Q 1 Q 0 An  increase in supply  refers to a rightward shift in the market supply curve.
Change in Supply Quantity Price P 0 Q 1 Q 0 A  decrease in supply  refers to a leftward shift in the market supply curve.
Market Equilibrium <ul><li>Market equilibrium  is determined at the intersection of the market demand curve and the market...
Market Equilibrium Quantity Price P Q D S
Market Equilibrium Quantity Price P 0 Q 0 D 0 S 0 An  increase in demand  will cause the market equilibrium price and quan...
Market Equilibrium Quantity Price S 0 D 0 A  decrease in demand  will cause the market equilibrium price and quantity to d...
Market Equilibrium Quantity Price P 0 Q 0 D 0 An  increase in supply  will cause the market equilibrium price to decrease ...
Market Equilibrium Quantity Price D 0 A  decrease in supply  will cause the market equilibrium price to increase and quant...
 
 
 
 
 
 
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Ch. 1-nature-and-scope-of-m.e.

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Transcript of "Ch. 1-nature-and-scope-of-m.e."

  1. 3. Managerial Economics Defined <ul><li>The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently. </li></ul><ul><ul><li>applications of economic theory </li></ul></ul><ul><ul><li>quantitative methods </li></ul></ul><ul><ul><li>statistical methods </li></ul></ul><ul><ul><li>computational methods </li></ul></ul>
  2. 5. Economic Theory <ul><li>Microeconomics </li></ul><ul><ul><li>Study of the economic behavior of individual decision-making units. </li></ul></ul><ul><ul><li>Relevance to Managerial Economics </li></ul></ul><ul><li>Macroeconomics </li></ul><ul><ul><li>Study of the total or aggregate level of output, income, employment, consumption, investment, and prices for the economy viewed as a whole . </li></ul></ul>
  3. 6. Decision Sciences <ul><li>Mathematical Economics </li></ul><ul><ul><li>Expresses and analyzes economic models using the tools of mathematics. </li></ul></ul><ul><li>Econometrics </li></ul><ul><ul><li>Employs statistical methods to estimate and test economic models using empirical data. </li></ul></ul>
  4. 7. Economic Methodology <ul><li>Economic Models </li></ul><ul><ul><li>Abstract from details </li></ul></ul><ul><ul><li>Focus on most important determinants of economic behavior – cause and effect </li></ul></ul><ul><li>Evaluating Economic Models </li></ul><ul><ul><li>A model is accepted if it predicts accurately and if the predictions follow logically from the assumptions. </li></ul></ul>
  5. 9. Theory of the Firm <ul><li>Combines and organizes resources for the purpose of producing goods and/or services for sale. </li></ul><ul><li>Internalizes transactions, reducing transactions costs. </li></ul><ul><li>Economic theory assumes that the primary goal of managers is to maximize the value of the firm. </li></ul>
  6. 10. Value of the Firm The present value of all expected future profits
  7. 11. Alternative Theories <ul><li>Sales maximization </li></ul><ul><ul><li>Adequate rate of profit </li></ul></ul><ul><li>Management utility maximization </li></ul><ul><ul><li>Principle-agent problem </li></ul></ul><ul><li>Satisficing behavior </li></ul>
  8. 12. Definitions of Profit <ul><li>Business or Accounting Profit: Total revenue minus the explicit or accounting costs of production. </li></ul><ul><li>Economic Profit: Total revenue minus the explicit and implicit costs of production. </li></ul><ul><li>Opportunity Cost: Implicit value of a resource in its best alternative use. </li></ul>
  9. 13. Theories of Profit <ul><li>Risk-Bearing Theories of Profit </li></ul><ul><li>Frictional Theory of Profit </li></ul><ul><li>Monopoly Theory of Profit </li></ul><ul><li>Innovation Theory of Profit </li></ul><ul><li>Managerial Efficiency Theory of Profit </li></ul>
  10. 14. Social Function of Profit <ul><li>Profit is a signal that guides the allocation of society’s resources. </li></ul><ul><li>High profits in an industry are a signal that buyers want more of what the industry produces. </li></ul><ul><li>Low (or negative) profits in an industry are a signal that buyers want less of what the industry produces. </li></ul>
  11. 15. Business Ethics <ul><li>Identifies types of behavior that businesses and their employees should not engage in. </li></ul><ul><li>Source of guidance that goes beyond enforceable laws. </li></ul>
  12. 16. The Changing Environment of Managerial Economics <ul><li>Globalization of Economic Activity </li></ul><ul><ul><li>Goods and Services </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Skilled Labor </li></ul></ul><ul><li>Technological Change </li></ul><ul><ul><li>Telecommunications Advances </li></ul></ul><ul><ul><li>The Internet and the World Wide Web </li></ul></ul>
  13. 18. Contd
  14. 19. (contd)
  15. 20. Appendix to Chapter 1
  16. 21. Law of Demand <ul><li>A decrease in the price of a good, all other things held constant, will cause an increase in the quantity demanded of the good. </li></ul><ul><li>An increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good. </li></ul>
  17. 22. Change in Quantity Demanded Quantity Price P 0 Q 0 P 1 Q 1 An increase in price causes a decrease in quantity demanded.
  18. 23. Change in Quantity Demanded Quantity Price P 0 Q 0 P 1 Q 1 A decrease in price causes an increase in quantity demanded.
  19. 24. Changes in Demand <ul><li>Change in Buyers’ Tastes </li></ul><ul><li>Change in Buyers’ Incomes </li></ul><ul><ul><li>Normal Goods </li></ul></ul><ul><ul><li>Inferior Goods </li></ul></ul><ul><li>Change in the Number of Buyers </li></ul><ul><li>Change in the Price of Related Goods </li></ul><ul><ul><li>Substitute Goods </li></ul></ul><ul><ul><li>Complementary Goods </li></ul></ul>
  20. 25. Change in Demand Quantity Price P 0 Q 0 Q 1 An increase in demand refers to a rightward shift in the market demand curve.
  21. 26. Change in Demand Quantity Price P 0 Q 1 Q 0 A decrease in demand refers to a leftward shift in the market demand curve.
  22. 27. Law of Supply <ul><li>A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good. </li></ul><ul><li>An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good. </li></ul>
  23. 28. Change in Quantity Supplied Quantity Price P 1 Q 1 P 0 Q 0 A decrease in price causes a decrease in quantity supplied.
  24. 29. Change in Quantity Supplied Quantity Price P 0 Q 0 P 1 Q 1 An increase in price causes an increase in quantity supplied.
  25. 30. Changes in Supply <ul><li>Change in Production Technology </li></ul><ul><li>Change in Input Prices </li></ul><ul><li>Change in the Number of Sellers </li></ul>
  26. 31. Change in Supply Quantity Price P 0 Q 1 Q 0 An increase in supply refers to a rightward shift in the market supply curve.
  27. 32. Change in Supply Quantity Price P 0 Q 1 Q 0 A decrease in supply refers to a leftward shift in the market supply curve.
  28. 33. Market Equilibrium <ul><li>Market equilibrium is determined at the intersection of the market demand curve and the market supply curve. </li></ul><ul><li>The equilibrium price causes quantity demanded to be equal to quantity supplied. </li></ul>
  29. 34. Market Equilibrium Quantity Price P Q D S
  30. 35. Market Equilibrium Quantity Price P 0 Q 0 D 0 S 0 An increase in demand will cause the market equilibrium price and quantity to increase. Q 1 P 1 D 1
  31. 36. Market Equilibrium Quantity Price S 0 D 0 A decrease in demand will cause the market equilibrium price and quantity to decrease. P 1 Q 1 Q 0 P 0 D 1
  32. 37. Market Equilibrium Quantity Price P 0 Q 0 D 0 An increase in supply will cause the market equilibrium price to decrease and quantity to increase. S 0 Q 1 P 1 S 1
  33. 38. Market Equilibrium Quantity Price D 0 A decrease in supply will cause the market equilibrium price to increase and quantity to decrease. P 1 Q 1 Q 0 P 0 S 1 S 0
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