Managerial Analysis- Module 1

Economics and Managerial Decision Making
Economics (text definition)
The study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources
Economics (Moss’ favorite definition)
Economics is concerned with how people to allocate scarce resources among alternative uses.
Scarcity
Scarce means that there is not enough of the resource available to satisfy all the desires for it without imposing a system of rationing.
Resource
• Anything valuable
• Consumption Resources
• Factors of Production (Inputs): Land, Labor, Capital, Entrepreneurship
Land
is any natural resource
Labor
is work, human toil
Capital
is any man made improvement to the production process. Tangible: machines, factories; intangible: human capital
Entrepreneurship
is the willingness to take certain risks in the pursuit of goals
Microeconomics
is the study of individual consumers and producers in specific markets, especially:
• Supply and demand
• Consumer behavior
• Pricing of output
• Production process
• Cost structure
• Distribution of income
Macroeconomics
is the study of the aggregate economy, especially:
• National output (GDP)
• Unemployment
• Inflation
• Fiscal and monetary policies
• Trade and finance among nations
Managerial Economics
• Application of economic theory and analytical tools to help managers make better decisions.
• Goal of this course is to show how these tools can be used.
• Draws primarily on applied microeconomics.
Relationship to other business disciplines
Marketing: demand, price elasticity, pricing strategies
Finance: capital budgeting, breakeven analysis, opportunity cost, value added
Management science: regression analysis, forecasting
Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost
Questions that managers must answer:

What are the economic conditions in our particular market?
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