The Fundamentals

of
Managerial Economics

BY

AFIK . ALEX . AZRA

Managerial Economics
The Manager
A person who direct the resources to achieved a stated goal

Economics
The science of making decisions in the presence of scarce resources

Managerial Economics
The study of how to direct scarce resources in the way that most
directly achieves a managerial goal.

The Economics Of Effective Management

Identify Goals and Costraints

Recognize the nature and Importance Of Profits
Understand Incentives
Understand markets
Recognize the time value of money
Use Marginal Analysis

Identify Goals and Constraint

The first step in making a decisions is determine the

goal, because achieving different goals entails
making different decisions.

Recognize the Nature and

Importance of Profits

Economic vs Accounting Profits

Accounting profits : Total amount of money taken in from sales

(total revenue, or prices times quantity sold) minus the dollar cost of
producing of goods and services. Reported on the firms income
statement.
Economic Profits : The difference between the total revenue and the
total opportunity cost of producing goods or services.

Opportunity Cost
Account Cost

The explicit cost of the resources needed to produce goods or

services
Reported on the firms income statement

Opportunity Cost

Opportunity cost is the cost incurred as a result of choosing a

best chance of a few alternatives available.

Explicit and Implicit Cost

Explicit Cost

The costs that are incurred in order to obtain input needed in

the production process.
e.g : Material costs, wages, salaries, interest, rent, etc.

Implicit Cost

The price of each input which is owned by the company and

used in the production
e.g : Factory, machinery and equipment that have opportunity
costs.

Incentives
Based on realist view, human is selfish. Everyone
who came to you is greedy.
Person: Something that motivates an individu to
perform an action
Firm: A bonus that can affect workers performance
or a trigger to induce maximal effort of worker

Markets
A result of crossing interest between buyers and
sellers or producers and consumers. There are 3 ways
of rivalry in a market:
Consumer-Producer Rivalry
Consumer-Consumer Rivalry
Producer-Producer Rivalry

Time Value of Money

Time is money
-Benjamin Franklin-

A money is worth more (or less) the sooner its received or

paid due to it ability to earn an interest.

Aplication:

To evaluate business decisions where at least some of the cash flows for
future
To project future money amounts, such as cash flows, incomes, and
prices

Time Value of Money

Money concept based on time:
Present Value

The number of $ you should spent presently in order to payback number of $ in the
future
Future Value Interest lost

Future Value
The number of $ you will have to pay back in the future as a result of given number of
$ presently
Present Value + Interest earned

Time Value of Money

Net Present Value (NPV)
A concept used for measure the worth of any business plan or an invesment
If the result number is more than zero, it gives a profit to the firm
If the result number is less than zero, it gives a deficit to the firm

Using Marginal Analysis

Marginal analysis
Managerial decisions involve comparing the marginal benefits of a
decisions with the managerial costs.

Marginal benefit
The change in total benefits arising from a change in the managerial control

variable Q.

Marginal costs
The change in total costs arising from a change in the managerial control

variable Q.

Determining the optimal level of a control

variable

Net benefit marginal maximaze at marginal benefits equal marginal costs (MB=MC)

Why was Kristofer employment terminated?

Kristofer didnt have a good basic at managerial:

He didnt think about the constraints.

Too much focused on profit or ambitious.
Cant apply the formula of NPV very well

It will make Norwegian Cruises lose over $1 million

THANK

YOU