Managerial economics
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Managerial economics in one lecture
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Managerial economics
- 1. Managerial Economics (In One Lecture) By: Kokab Manzoor 0092 3338371767 kokabmanzoor2012@gmail.com https://www.facebook.com/Kokabmanzoor19/
- 2. Recommended books Fundamentals of Managerial Economics by Mark Hirschey 11th ed Managerial Economics, A problem solving approach by Nick Wilkinson Theory and problems of Managerial Economics by Dominick Salvatore
- 3. Some Definitions of Managerial Economics. Hirschey defines : “Managerial economics applies economic theory and methods to business and administrative decision making”
- 5. Theory of the Firm The neoclassical theory of the firm is sometimes called a ‘black box’. There is no attempt to probe inside the box and explain why firms exist in the first place, or how the individuals who constitute firms are motivated and interact.
- 6. Theory of the Firm There are six main areas of economic theory that are involved in the examination of the nature of the firm: a)Transaction cost theory b)Information theory c) Motivation theory d)Agency theory e) Property rights theory and f) Game theory.
- 7. The Basic Profit- Maximizing Model (BPM) In economic analyses the most common objective that firms are regarded as pursuing is Profit Maximization. (BPM) prescribes that a firm will produce the output where marginal cost equals marginal revenue. MC MR approach
Editor's Notes
- What is Economics , Management & then what is Managerial economics Economics, 4 FoP`s, Elasticity types degrees & decision making, regression, Market, Managerial economics prescribes rules for improving managerial decisions. Managerial economics also helps managers recognize how economic forces affect organizations and describes the economic consequences of managerial behavior. It links economic concepts with quantitative methods to develop vital tools for managerial decision making.
- Managerial problems are: product selection, pricing and output policies of the firm, product development and promotion strategy of the firm, the problem of hiring workers and their training, investment and financing problems….. The use of managerial economics to solve all the listed problems. The scope of managerial economics is not only limited to business firm but it applies to all the org. e.g. a hospital management may want to provide standard medical facilities to all the patients in the presence of some constraints. These constraints are financial and other physical resources like doctor , nurses, technicians, drugs, number of beds etc.. public university seeks to provide the standard education to as many students as possible given the constraints. Similarly, a Govt agency providing utilities to people on a lesser cost given the constraints. All these org use ME to solve their problems. Objectives and constraints might be different for different org but the decision making remains the same. ME has a vast scope to be used by any org. Economic theory: Micro Economics is the study of economic behavior of individual decision making units such as individual consumers, resource owners and business firms. Economic theory usually begin with a MODEL. This abstracts from the many details surrounding an event and seeks to identify a few of the most important determinants of the event. Macro Economics on the other hand is the study of TOTALS or Aggregates i.e. aggregate level of output, employment, consumption, investment and prices viewed as a whole in the economy. ME uses essentially the tools of Micro economics but it doesn’t mean that macro economics is ignored. Firm operating in the economy has to consider the variables like aggregate demand, rate of inflation, and interest rate . ME uses and applies economic theories and quantitative techniques like mathematical economics, econometrics and all other computational methods .mathematical economics is not the branch of economics but the application of maths in economics. Econometrics focuses on statistical techniques use on real world data. All theoretical concepts will be converted into quantitative equations and functions .Quantitative techniques like optimization , for opt. tech , we would use differential calculus, linear programming, and game theory. Mathematical Economics: it expresses and analyzes economic models using the tools of mathematics Econometrics: employs statistical methods to estimate and test economic models using empirical data(real world data). e.G. Quantity demanded is a function of price QDx = f (Px,Y,Pr). By having the data about price of related goods, price of our product x and income of the consumer, the firm can estimate the demand of the product in the future, some times by using statistical techniques.
- There are six main areas of economic theory that are involved in the examination of the nature of the firm; TIMPAG Transaction cost theory ( spot markets, long-term contracts with external parties and vertical integrated transactions ) (search, bargaining & contracting cost) Information theory ( Since people have asymmetric information, to find out hidden information and hidden action firm incur cost) Motivation theory ( basic economic principle is “self interest) but altruistic and spite behavior issues Agency theory, (goals of agent and principle usually do not coincide, so firm can have contracts which specify rights and obligations for both parties Property rights theory and ( This discusses “issues and nature of ownership”) concept of residual control and residual return Game theory. ( how firms make strategic decision knowing how other firms will act and react to it)