manager economic in a global economy chapter 1

manager economic in a global econ

1. Managerial Economics in a Managerial Economics in a
Global EconomyGlobal Economy
Chapter 1
The Nature and Scope
of Managerial Economics

2. Managerial Economics Managerial Economics
DefinedDefined
The application of economic theory and the
tools of decision science to examine how an
organization can achieve its aims or
objectives most efficiently.

3. Managerial Decision Problems
Economic theory
Microeconomics
Macroeconomics
Decision Sciences
Mathematical Economics
Econometrics
MANAGERIAL ECONOMICS
Application of economic theory
and decision science tools to solve
managerial decision problems
OPTIMAL SOLUTION TO
MANAGERIAL DECISION PROBLEMS

4. Theory of the FirmTheory of the Firm
Combines and organizes resources for the
purpose of producing goods and/or services
for sale.
Internalizes transactions, reducing
transactions costs.
Primary goal is to maximize the wealth or
value of the firm.

5. Value of the FirmValue of the Firm
The present value of all expected future profits
1 2
1 2
1(1 ) (1 ) (1 ) (1 )
n
n t
n t
t
PV
r r r r
  

    
   

1 1(1 ) (1 )
n n
t t t
t t
t t
TR TC
Valueof Firm
r r

 

 
 
 

6. Alternative TheoriesAlternative Theories
Sales maximization
–Adequate rate of profit
Management utility maximization
–Principle-agent problem
Satisficing behavior

7. Definitions of ProfitDefinitions of Profit
Business 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.

8. Theories of ProfitTheories of Profit
Risk-Bearing Theories of Profit
Frictional Theory of Profit
Monopoly Theory of Profit
Innovation Theory of Profit
Managerial Efficiency Theory of Profit

9. Function of ProfitFunction 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.

10. Business EthicsBusiness Ethics
Identifies types of behavior that businesses
and their employees should not engage in.
Source of guidance that goes beyond
enforceable laws.

11. The Changing Environment of The Changing Environment of
Managerial EconomicsManagerial Economics
Globalization of Economic Activity
–Goods and Services
–Capital
–Technology
–Skilled Labor
Technological Change
–Telecommunications Advances
–The Internet and the World Wide Web