Topic1-Managers and Economics(May2014)

8/11/2019 Topic1-Managers and Economics(May2014)

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THEME FOR ECONOMIC ANALYSISFOR MANAGERS

ECONOMIC EFFICIENCY

FOR ENSURINGCOMPETITIVENESS


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WHAT DO MANAGERS DO?

DEVELOP POLICIES & GOALS FORORGANIZATION

DEVELOP STRATEGIES FORACHIEVING GOALS

ACQUIRE NECESSARY RESOURCES

ORGANISE AND DIRECT THESERESOURCES


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HOW DOES ECONOMICS ANALYSIS FITS

IN FOR MANAGERS?ECONOMICS ANALYSIS PROVIDES AMACRO/MICRO VIEW OF HOW BEST

RESOURCES ARE USED.

THIS WOULD MEAN LOOKING AT THECOST AND ALLOCATIVE EFFICIENCYOFUSING RESOURCES.


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LEVEL OF ANALYSIS

Business

Functional

Areas

Microecon.

concepts

Macroecon. concepts


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MAIN CONCEPTS AND ANALYSIS INECONOMICS

MARGINAL ANALYSIS

OPTIMIZATION

EQUILIBRIUM

VALUE (Values of exchange) andOPPORTUNITY COST


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TOOLS USED IN ECONOMICS

ANALYIS MATHEMATICAL FUNCTIONS (numeric)

eg Qd= 200- 4.5Px+ 2.06Ax

GRAPHICAL ILLUSTRATION (Graphic)y

X

y1

x1


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MATHEMATICAL FUNCTIONS

Provides an expression of a relationshipbetween dependent variable (y) and

independent variables (x1; x2; x3) For example,

y = f (x1; x2; x3)

Qd

= f ( Price ; Advertising expenditure;Income)

Qd= 220 2.25P + 0.45Adv+ 0.06Inc


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APPLICATION OF MARGINAL ANALYSIS

Marginal values, for example, marginal revenue,marginal cost, marginal productivity of labor, marginalpropensity to consume etc are very much applied ineconomic analysis for decision making.

Marginal cost and marginal revenue are expressed asfollows:MC = TC/QMR = TR/Q

Thus, Output at max. profit is when MR=MC, i.e.

TC/ Q = TR/Q Output at max. revenue is when MR= 0, i.e.

TR/Q = 0


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APPLICATION OF MARGINAL ANALYSIS

Note:Managers need to remember, maximizingrevenue does not necessarily means getting

maximum profit.

It is only true, if MR is constant (price is fixedat all levels of output) and when MC is alsoconstant(there is no diminishing productivity inthe use of inputs).


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DERIVATIVES AND DIFFERENTIATIONFOR MARGINAL ANALYSIS

Example,

The process of finding thederivatives y/x froma function:

- linear function

- quadratic function- cubic function


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DERIVATIVES AND DIFFERENTIATIONFOR MARGINAL ANALYSIS

Derivatives are used to find theeffect of a very small change of

independent variable (x) on thedependent variable (y),expressed as y/x

The process of finding thederivatives is known asdifferentiation.


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Topic1-Managers and Economics(May2014)

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