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Managerial Economics:Economic Tools forToday’s Decision

Makers, 4/e By PaulKeat and Phili !oung

"hater #"hater #

$ntroducti

on

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2003 Prentice Hall Business Publishing Managerial Economics, 4/e Keat/Young

Introduction

• Economics and Managerial Decision

Making

• The Economics of a Business

• Review of Economic Terms

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Economics and Managerial

Decision Making

• 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!" #Mc$onnell%&&'(

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Decision Making

• Management is the discipline of

organi)ing and allocating a firm*s

scarce resources to achieve its desired

ob+ectives!

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Decision Making

• Managerial economics is the use of

economic analysis to make business

decisions involving the best use

#allocation( of an organi)ation*s scarce

resources!

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• ,uestions that managers must answer-

• .hat are the economic conditions in a particular market/

•Market 0tructure/

•0upply and Demand $onditions/

•Technology/

•1overnment Regulations/•2nternational Dimensions/

•3uture $onditions/

•Macroeconomic 3actors/


Decision Making

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7/31 2003 Prentice Hall Business Publishing Managerial Economics, 4/e Keat/Young


• 0hould our firm be in this business/

• 2f so what price and output levelsachieve our goals/


Decision Making

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• 4ow can we maintain a competitiveadvantage over our competitors/

•$ost5leader/

•6roduct Differentiation/

•Market 7iche/

•8utsourcing alliances mergers

ac9uisitions/

•2nternational Dimensions/


Decision Making

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• .hat are the risks involved/

• Risk is the chance or possibility thatactual future outcomes will differ from

those e:pected today!


Decision Making

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Decision Making

• Types of risk

• $hanges in demand and supply

conditions• Technological changes and the effect of

competition

• $hanges in interest rates and inflationrates

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Decision Making

• Types of risk

• E:change rates for companies engaged in

international trade• 6olitical risk for companies with foreign

operations

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The Economics of a Business

• The economics of a business refers to thekey factors that affect the ability of a firm to

earn an acceptable rate of return on itsowners* investment!

• The most important of these factors are

• competition• technology

• customers

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• 3our 0tage Model of $hange

• 0tage 2

• “the good old days"

• high profit margins

• cost plus


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• 0tage 22

• cost management

• cost cutting downsi)ing restructuring

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• 0tage 222

• limits to the growth in profits

• revenue management

• “top5line growth"

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• 0tage 2;

• revenue plus

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Review of Economic Terms

• Microeconomics is the study of individualconsumers and producers in specific

markets!• supply and demand

• pricing of output

• production processes• cost structure

• distribution

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• Scarcity is the condition in which

resources are not available to satisfy all

the needs and wants of a specified

group of people!

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• Opportunity cost is the amount or

sub+ective value that must be sacrificed

in choosing one activity over the ne:t5

best alternative!

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• Because of scarcity an allocation

decision must be made! The allocation

decision of a society is comprised ofthree separate choices-

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• What and how many goods and services

should be produced/

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• How should these goods and services be

produced/

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• For whom should these goods and

services be produced/

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• 3or the firm these allocation choices

can be restated as follows-

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• What - The product decision!

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• How - The hiring staffing

procurement and capital

budgeting decisions!

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• For whom - The market

segmentation decision!

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• Resources

• 3actors of production or inputs

•

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• Entrepreneurship is the willingness to

take certain risks in the pursuit of

goals!

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• Management is the ability to organi)e

and administer various tasks in pursuit

of certain ob+ectives!

Ch01 (2).ppt

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