Samenvatting Managerial Economics

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chapter 1. introduction to managerial economics
1. what is managerial economics?
Managerial economics
= the science of directing scarce resources to manage effectively → each needs to understand how they can influence the demand through price and advertising, what is the best organizational architecture and how to compete Differences between ‘new’ and ‘old’ economy

* Network effects in demand
= the benefit provided to any user depends on the total number of other users * Scalability
= the degree to which the scale and scope of business can be increased without a corresponding increase in costs
→ Public good
= one person’s consumption does not reduce the quantity available to others Branches Managerial economics:
* Competitive markets
* Market power
* Imperfect markets
2. preliminaries
scope (omvang)
Microeconomics
= the study of individual economic behavior where resources are costly → how consumers respond to changes in prices and income, …

Managerial economics more limited scope
= it is the application of microeconomics to managerial issues Macroeconomics
= focuses on aggregate economic variables
= considers economic aggregates directly rather than as the aggregation of individual consumers and businesses

methodology
Fundamental premise
= individuals share common motivations that lead them to behave systematically in making economic choices
→ a person who faces the same choices at two different times will behave in the same way at both times
→ it is systematic so it can be studied Economic model
= a concise description of behavior and outcomes = abstraction

Models are constructed by inductive reasoning
→ afterwards, the model should be tested
marginal vis-à-vis average
Marginal value
= the change in the variable associated with a unit increase in a driver Average value
= total value of the variable divided by the total quantity of a driver → relation between the marginal and average values depends on whether the average value is decreasing, constant or increasing with respect to the driver Stocks and flows

Stock
= quantity at a specific point in time
Flow
= the change in a stock over some period of time
→ measured in units per time period
other things equal
= an approach to simplify the problem by analyzing each change separately, holding other things equal

3. timing
Two types of models
* Static models
= describe behavior at a single point of time, disregard differences in the sequences of actions and payments
→ model of competitive markets, analysis of organizational architecture * Dynamic models
= focus on the timing and sequence of actions and payments = receipts and expenditures often occur at different times discounting
Investments
= using resources at some times in order to receive benefits at other times → discount future values to that they can be compared with the present Net present value
= the sum of the discounted values of a series of inflows and outflows over time = represents the current valuation of a flow of dollars time Internal rate of return
= alternative for the net present value without using the discount rate 4. organization
organizational boundaries
Vertical boundaries
= delineates activities closer to or further from the end user Horizontal boundaries
= defined by its scale and scope of operations
* Scale
= rate of production or delivery of a good or service * Scope
= refers to the range of different items...
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