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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 companys scarce resources. Compare the three basic economic questions from the standpoint of both a country and a company.
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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.
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Economics and Managerial Decision Making
Management
The science of organizing and allocating a
firms scarce resources to achieve its desired objectives.
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Economics and Managerial Decision Making
Managerial economics
The use of economic analysis to make business
decisions involving the best use (allocation) of an organizations scarce resources.
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Economics and Managerial Decision Making
Relationship to other business disciplines
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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?
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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?
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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?
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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?
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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?
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Review of Economic Terms and Concepts
The economics of a business refers to the
key factors that affect the firms ability to earn an acceptable rate of return on its owners investment.
The most important of these factors are
competition technology customers
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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
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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
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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.
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Review of Economic Terms and Concepts
The Nature of Scarcity
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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?
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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
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Review of Economic Terms and Concepts
3 Basic economic questions - Country and
company
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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
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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 firms 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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