• • Review of economic terms and concepts Learning Objectives
• Define managerial economics and discuss briefly
its relationship to microeconomics and other related fields of study such as finance, marketing, and statistics. • Cite and compare the important types of decisions that managers must make concerning the allocation of a company’s scarce resources. • Compare the three basic economic questions from the standpoint of both a country and a company. Economics and Managerial Decision Making • Economics • – The study of the behavior of human – beings in producing, distributing and – consuming material goods and – services in a world of scarce resources. • Economics and Managerial Decision Making • Management • – The science of organizing and allocating a – firm’s scarce resources to achieve its – desired objectives. • Economics and Managerial Decision Making • Managerial economics • – The use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources. • Economics and Managerial Decision Making • Relationship to other business disciplines • Economics and Managerial Decision Making • Questions that managers must answer: – What are the economic conditions in our particular market? • market structure? • supply and demand? • technology? • Economics and Managerial Decision Making • Questions that managers must answer: – Should our firm be in this business? • if so, at what price? • at what output level? • can the firm achieve a sustainable competitive advantage? Economics and Managerial Decision Making • Questions that managers must answer: – What are additional economic conditions in our particular market? • government regulations? • international dimensions? • future conditions? • macroeconomic factors? • Economics and Managerial Decision Making • Questions that managers must answer: – What is our strategy to maintain a competitive advantage in the market? • cost-leader? • product differentiation? • market niche? • outsourcing, alliances, mergers? • international perspective? Economics and Managerial Decision Making • Questions that managers must answer: – What are the risks involved? • changes in demand and supply conditions? • technological changes and the effect of competition? • changes in interest and inflation rates? • exchange rate changes for companies engaged in international trade? • political risk for companies with foreign operations? Review of Economic Terms and Concepts • The economics of a business refers to the key factors that affect the firm’s ability to earn an acceptable rate of return on its owners’ investment.
The most important of these factors are
• competition • technology • customers Review of Economic Terms and Concepts • Microeconomics is the study of individual consumers and producers in specific markets, especially: • supply and demand • pricing of output • production process • cost structure • distribution of income • Review of Economic Terms and Concepts • Macroeconomics is the study of the aggregate economy, especially: • national output (GDP) • unemployment • inflation • fiscal and monetary policies • trade and finance among nations • Review of Economic Terms and Concepts • Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people. • • Opportunity cost is the amount (or subjective value) that must be sacrificed in choosing one activity over the next best alternative. • Review of Economic Terms and Concepts • The Nature of Scarcity Review of Economic Terms and Concepts
• Allocation decisions must be made because of
scarcity. Three choices: • What should be produced?
How should it be produced?
For whom should it be produced?
• Review of Economic Terms and Concepts
• 3 Systems to answer the what, how and for whom
questions • • Market process: The use of supply, demand, and material incentives • Command process: The use of the government or some central authority • Traditional process: The use of customs and traditions Review of Economic Terms and Concepts • 3 Basic economic questions - Country and company Review of Economic Terms and Concepts • Entrepreneurship is the willingness to take certain risks in the pursuit of goals • • Management is the ability to organize resources and administer tasks to achieve objectives Summary
• Managerial economics is a discipline that combines
microeconomic theory with management practice. • • An important function of a manager is to decide how to allocate a firm’s scarce resources. • • The application of economic theory and concepts helps managers make allocation decisions that are in the best economic interests of their firms.
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