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

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Microeconomics-Salvatore

Microeconomics-Salvatore

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

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