Sei sulla pagina 1di 22

ECO 16

Faculty of Arts and Letters


University of Santo Tomas
Economics and Managerial
Decision Making
The Economics of a Business
Review of Economic Terms and
Concepts
Economics is the study of the
behavior of human beings in
producing, distributing and
consuming material goods and
services in a world of scarce
resources. (McConnell, 1993)
Management is the discipline of
organizing and allocating a firms
scarce resources to achieve its desired
objectives.
Managerial Economics is the use of
economic analysis to make business
decisions involving the best use
(allocation) of an organizations scarce
resources.
Questions that managers must answer:
What are the economic conditions in a
particular market?
Market structure
Supply and demand conditions
Technology
Government regulations
International dimensions
Future dimensions
Macroeconomic factors

Questions that managers must
answer:
Should the firm be in business?
If so, what price and output levels
achieve our goals?
Questions that managers must
answer:
How can we maintain a competitive
advantage over our competitors?
Cost-leader
Product differentiation
Focus on market niche
Outsourcing, alliances, mergers and
acquisitions
International dimension (regional or
country focus or expansion)
Questions that managers must
answer:
What are the risks involved?
Risk is the chance or possibility that
actual future outcomes will differ from
those expected today (unfavorable
results)
Types of risks:
Changes in the supply and demand
conditions;
Technological changes and the effect
of competition;
Changes in the interest rate and the
inflation rate;
Exchange rate changes for firms
involved in international trade;
Political risks for companies with
foreign operations
The economics of a business refers to
the key factors that affect the ability
of a firm to earn an acceptable rate of
return on its owners investment;
The most important of these factors
are:
Competition
Technology
Customers

There are four stage model of
change:
Stage 1
Good old days
High profit margins
Cost plus
Stage 2
Cost management
Cost-cutting, downsizing and
restructuring, and
reengineering
Stage 3
Limits to growth in profits
Top line growth or revenue
growth
Revenue management
Stage 4
Revenue plus
Microeconomics is the study of individual
consumers and producers in specific
markets.
Supply and demand
Pricing of outputs and inputs (also
called the factors of production or
resources)
production processes
Cost structure
Distribution of income and output

Macroeconomics is the study of the
aggregate economy.
National income analysis
Unemployment
Inflation
Fiscal policy
Monetary policy
Trade and investments

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.

Because of scarcity, an allocation
decision must be made. The allocation
decision of a society is comprised of
three separate choices:
What and how many goods and
services should be produced?
How should these goods and
services be produced? (land, labor,
capital and entrepreneurial efforts)
For whom should these goods and
services be produced?
For the firm, these allocation choices
can be restated as follows:
What: the product decision
How : The hiring, staffing,
procurement, and capital budgeting
decisions.
For whom : The market segmentation
decision.
Entrepreneurship is the willingness to
take certain risks in the pursuit of
goals.
Management is the ability to organize
and administer various tasks in
pursuit of certain objectives.
Business Ethics
Unethical conduct is inconsistent with the
goal of value maximization and contrary
to the enlightened self interest of
management and its employees.
To become successful in business, a set of
ethical rules should be adopted:

To become successful in business, a set of
ethical rules should be adopted:
Above all else, keep your word. Say what
you mean and mean what you say;
Do the right thing. A handshake with an
honorable person is worth more than a ton
of legal documents from a corrupt
individual;


To become successful in business, a set of
ethical rules should be adopted:
Accept responsibility for your mistakes, and
fix them. Be quick to share credit for
success;
Leave something on the table. Profit with
your customer and not off your customer.
Stick by your principles. Principles are not
for sale at any price.

Potrebbero piacerti anche