Me11 -ch. 1

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Me11 -ch. 1

  1. 1. MANAGERIAL ECONOMICS 11 th Edition By Mark Hirschey
  2. 2. Nature and Scope of Managerial Economics Chapter 1
  3. 3. Chapter 1 OVERVIEW <ul><li>How Is Managerial Economics Useful? </li></ul><ul><li>Theory of the Firm </li></ul><ul><li>Profit Measurement </li></ul><ul><li>Why Do Profits Vary among Firms? </li></ul><ul><li>Role of Business in Society </li></ul><ul><li>Structure of this Text </li></ul>
  4. 4. Chapter 1 KEY CONCEPTS <ul><li>managerial economics </li></ul><ul><li>theory of the firm </li></ul><ul><li>expected value maximization </li></ul><ul><li>value of the firm </li></ul><ul><li>present value </li></ul><ul><li>optimize </li></ul><ul><li>satisfice </li></ul><ul><li>business profit </li></ul><ul><li>normal rate of return </li></ul><ul><li>economic profit </li></ul><ul><li>profit margin </li></ul><ul><li>return on stockholders' equity </li></ul><ul><li>frictional profit theory </li></ul><ul><li>monopoly profit theory </li></ul><ul><li>innovation profit theory </li></ul><ul><li>compensatory profit theory </li></ul>
  5. 5. How Is Managerial Economics Useful? <ul><li>Evaluating Choice Alternatives </li></ul><ul><ul><li>Identify ways to efficiently achieve goals. </li></ul></ul><ul><ul><li>Specify pricing and production strategies. </li></ul></ul><ul><ul><li>Provide production and marketing rules to help maximize net profits. </li></ul></ul><ul><li>Making the Best Decision </li></ul><ul><ul><li>Managerial economics can be used to efficiently meet management objectives. </li></ul></ul><ul><ul><li>Managerial economics can be used to understand logic of company, consumer, and government decisions. </li></ul></ul>
  6. 7. Theory of the Firm <ul><li>Expected Value Maximization </li></ul><ul><ul><li>Owner-managers maximize short-run profits. </li></ul></ul><ul><ul><li>Primary goal is long-term expected value maximization. </li></ul></ul><ul><li>Constraints and the Theory of the Firm </li></ul><ul><ul><li>Resource constraints. </li></ul></ul><ul><ul><li>Social constraints </li></ul></ul><ul><li>Limitations of the Theory of the Firm </li></ul><ul><ul><li>Alternative theory adds perspective. </li></ul></ul><ul><ul><li>Competition forces efficiency. </li></ul></ul><ul><ul><li>Hostile takeovers threaten inefficient managers. </li></ul></ul>
  7. 9. Profit Measurement <ul><li>Business Versus Economic Profit </li></ul><ul><ul><li>Business (accounting) profit reflects explicit costs and revenues. </li></ul></ul><ul><ul><li>Economic profit. </li></ul></ul><ul><ul><ul><li>Profit above a risk-adjusted normal return. </li></ul></ul></ul><ul><ul><ul><li>Considers cash and noncash items. </li></ul></ul></ul><ul><li>Variability of Business Profits </li></ul><ul><ul><li>Business profits vary widely. </li></ul></ul>
  8. 10. Why Do Profits Vary Among Firms? <ul><li>Disequilibrium Profit Theories </li></ul><ul><ul><li>Rapid growth in revenues. </li></ul></ul><ul><ul><li>Rapid decline in costs. </li></ul></ul><ul><li>Compensatory Profit Theories </li></ul><ul><ul><li>Better, faster, or cheaper than the competition is profitable. </li></ul></ul>
  9. 11. Role of Business in Society <ul><li>Why Firms Exist </li></ul><ul><ul><li>Business is useful in satisfying consumer wants. </li></ul></ul><ul><ul><li>Business contributes to social welfare </li></ul></ul><ul><li>Social Responsibility of Business </li></ul><ul><ul><li>Serve customers. </li></ul></ul><ul><ul><li>Provide employment opportunities. </li></ul></ul><ul><ul><li>Obey laws and regulations. </li></ul></ul>
  10. 13. Structure of this Text <ul><li>Objectives </li></ul><ul><ul><li>Understand usefulness of economics in describing managerial behavior. </li></ul></ul><ul><ul><li>Understand how economics can be used to improve managerial decisions. </li></ul></ul><ul><ul><li>Appreciate vital role of business in society. </li></ul></ul>

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