Lecture Managerial economics - Chapter 1: The Fundamentals of managerial economics

Lecture Managerial economics - Chapter 9 introduction the Fundamentals of managerial economics. This chapter provides many useful insights into every facet of the business and nonbusiness world. Inviting you to refer.
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Lecture Managerial economics - Chapter 1: The Fundamentals of managerial economicsManagerial Economics Chapter 1: The Fundamentals of Managerial Economics 1-1 Introduction Why should I Study economics? Managerial Economics provides many useful insights into every facet of the business and nonbusiness world. 1-2Managerial Economics Manager  A person who directs resources and design incentive schemes to achieve a stated goal. (A manager plays many other roles, such as leadership, identifying problems and solving problems…but these are not the focus of this course.) Economics  The science of making decisions in the presence of scarce resources. Managerial Economics  The study of how a manager may achieve a stated goal within a given set of resource constraints. 1-3Identify Goals and Constraints Sound decision making involves having well- defined goals: e.g. what to maximize or minimize  Leads to making the “right” decisions. In striving to achieve a goal, we often face constraints.  Constraints are a result of scarcity. 1-4Opportunity Cost Accounting Costs  The explicit costs of the resources needed to produce goods or services.  Reported on the firm’s income statement. Opportunity Cost  The cost of the explicit and implicit resources that are foregone when a decision is made. Economic Profits  Total revenue minus total opportunity cost. 1-5Profits as a Signal Profits signal to resource holders where resources are most highly valued by society.  Resources will flow into industries that are most highly valued by society. 1-6 The Five Forces Framework Entry Costs Entry Network Effects Speed of Adjustment Reputation Sunk Costs Switching Costs Economies of Scale Government Restraints Power of Power of Input Suppliers BuyersSupplier Concentration Buyer ConcentrationPrice/Productivity of Sustainable Price/Value of SubstituteAlternative Inputs Products or ServicesRelationship-Specific Industry Relationship-SpecificInvestments Profits InvestmentsSupplier Switching Costs Customer Switching CostsGovernment Restraints Government Restraints Industry Rivalry Substitutes & Complements Concentration Price/Value of Surrogate Products Network Effects Switching Costs Price, Quantity, Quality, or Timing of Decisions or Services Government Service Competition Price/Value of Complementary Restraints Information Degree of Differentiation Products or Services Government Restraints 1-7Understanding Firms’ Incentives Incentives play an important role within the firm. Incentives determine:  How resources are utilized.  How hard individuals work. Managers must understand the role incentives play in the organization. Constructing proper incentives will enhance productivity and profitability. 1-8Market Interactions Consumer-Producer Rivalry  Consumers attempt to locate low prices, while producers attempt to charge high prices. Consumer-Consumer Rivalry  Scarcity of goods reduces consumers’ negotiating power as they compete for the right to those goods. Producer-Producer Rivalry  Scarcity of consumers causes producers to compete with one another for the right to service customers. The Role of Government  Disciplines the market process. 1-9Marginal (Incremental) Analysis Control/choice Variable Examples: – Output – Price – Product Quality – Advertising – R&D Basic Managerial Question: How much of the control variable should be used to maximize net benefits? 1-10Net Benefits Net Benefits = Total Benefits - Total Costs Profits = Revenue - Costs 1-11 Marginal Benefit (MB) Change in total benefits arising from a change in the control variable, Q: B MB  Q Slope (calculus: derivative) of the total benefit curve. ...