This document provides an overview of key concepts in managerial economics including theories of the firm, profit measurement, sources of profit variability, and the role of business in society. It outlines how managerial economics can help evaluate choices, make optimal decisions, and maximize profits. The text introduces concepts like expected value maximization, economic versus accounting profits, and disequilibrium and compensatory profit theories. It aims to explain how economics describes management and can improve decision-making.

1. Nature and Scope of
Managerial Economics

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. 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. 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.

6. 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.

8. 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.

9. 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.

10. 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.

12. 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.