Economic Analysis for Managers chapter1

8/18/2019 Economic Analysis for Managers chapter1

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Chapter One Copyright 2009 Pearson Education, Inc. Publishing as

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Chapter 1

Introduction


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Overview

Economics and managerial

decision making

Economics of a business

Review of economic terms


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Learning objectives define managerial economics

cite important types of resource

allocation decisions

illustrate ho econo!ic changes a""ect aillustrate ho econo!ic changes a""ect a"ir!#s ability to earn an acceptable return"ir!#s ability to earn an acceptable return

apply to an indi$idual "ir! the three basicapply to an indi$idual "ir! the three basic%uestions "aced by a country%uestions "aced by a country


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Economics and managerialdecision making

Economics

The study of the behavior of humanbeings in producing, distributing andconsuming material goods and

services in a world of scarceresources


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Management

The science of organizing and allocating afirm’s scarce resources to achieve itsdesired objectives


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Managerial economics

The use of economic analysis to makebusiness decisions involving the best use

allocation! of an organization’s scarce

resources


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Relationship to other business disciplines

Marketing " demand, price elasticity

Finance " capital budgeting, breakevenanalysis, opportunity cost, value added

Management science " linearprogramming, regression analysis,forecasting


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Relationship to other business disciplines

Strategy: types of competition,structure#conduct#performanceanalysis

Managerial accounting " relevantcost, breakeven analysis, incrementalcost analysis, opportunity cost


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$uestions that managers must answer"

%hat are the economic conditions in ourparticular market&

market structure& supply and demand&

technology&


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%hat are the economic conditions in ourparticular market&

government regulations& international dimensions&

future conditions& macroeconomic factors&


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'hould our firm be in this business& if so, at what price& and at what output level&


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(ow can we maintain a competitiveadvantage over other firms&

cost#leader& product differentiation& market niche& outsourcing, alliances, mergers& international perspective&


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%hat are the risks involved& shifts in demand)supply conditions& technological changes& the effect of competition& changing interest rates and inflationrates&


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%hat are the risks involved& e*change rates for companies ininternational trade!& political risk for firms with foreignoperations!&

Risk is the chance that actual futureoutcomes will differ from those e*pected


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Economics of a businessThe economics of a business refers tothe key factors that affect the firm’s abilityto earn an acceptable rate of return on its

owners’ investment

The most important of these factors are

competitiontechnologycustomers


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Economics of a business+hange" the four-stage model

'tage I the good old days’!

market dominance high profit margin cost plus pricing

- changes in technology, competition,customers force firm into 'tage II ..


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Economics of a business+hange" the four#stage model

'tage II crisis!

cost management downsizing restructuring

- re#engineering’ to deal with changesand move firm into 'tage III ..


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'tage III reform! revenue management cost cutting has limited benefit

- focus on top#line’ growth ..


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'tage I/ recovery! revenue plus

- revenue grows profitably


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Economics of a businessE*ample" 0von

well established company, in stage Iuntil late 1234s

found itself in 'tage II during 1254s since mid 1224s, entered stage III e*panded into emerging markets andupdated its image


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Economics of a businessE*ample" 'ears, 6mart

%al#7art effect 'ears pushed down to number threein late 1254s - repositioned itself as

a clothing store 6mart filed for bankruptcy in 8448 -plan to ac9uire 'ears


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Economics of a businessE*ample" 6odak

struggled to transition fromchemical#based film to digitalimaging

responded by developing strong cashflows in new product range


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Review of economic termsMicroeconomics is the study of individualconsumers and producers in specificmarkets, especially"

supply and demand pricing of output production process

cost structure distribution of income


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Review of economic termsMacroeconomics is the study of theaggregate economy, especially"

national output :;

unemployment inflation fiscal and monetary policies

trade and finance among nations


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Review of economic termsResources are inputs factors! ofproduction, notably"

land

labor capital entrepreneurship


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Review of economic termsScarcity is the condition in whichresources are not available to satisfy allthe needs and wants of a specified group

of people

Opportunity cost is the amount orsubjective value! that must be sacrificed inchoosing one activity over the ne*t bestalternative


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Review of economic termsAllocation decisions must be madebecause of scarcity. Three choices"

What should be produced&

How should it be produced&

For whom should be produced&


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Review of economic termsEconomic decisions of the Firm

What - begin or stop providinggoods)services production!

How # hiring, staffing, capital budgetingresourcing!

For whom = target the customers mostlikely to purchase marketing!


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Review of economic terms

Entrepreneurship is the willingness totake certain risks in the pursuit of goals

Management is the ability to organizeresources and administer tasks to achieve

objectives


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Global application

E*ample" %estern >nion

began over 144 years ago huge changes in technology to survive, the company branchedout


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Chapter One Copyright 2009 Pearson Edu 31

Global application

E*ample" /?>

;utch publishing company transformed itself into a globalprovider of marketing and mediainformation

Economic Analysis for Managers chapter1

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