managerial

Chapter 1
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Introduction

Economics and managerial decision making
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 Economics: The study of the behavior of human

beings in producing, distributing and consuming material goods and services in a world of scarce resources  Management: The science of organizing and allocating a firm’s scarce resources to achieve its desired objectives
 Managerial economics: The use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources Economics and managerial decision making
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 Relationship to other business disciplines

Marketing: demand, price elasticity
Finance: capital budgeting, breakeven analysis, opportunity cost, value added
Management science: linear programming, regression analysis, forecasting
Strategy: types of competition, structureconduct-performance analysis
Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost

The Economics of Effective Management
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 An effective manager must

(1) identify goals and constraints;
(2) recognize the nature and importance of profits; (3) understand incentives;
(4) understand markets;
(5) recognize the time value of money; and
(6) use marginal analysis.

Economics and managerial decision making
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 Questions that managers must answer:

What are the economic conditions in our particular market?  market structure?
 supply and demand?
 technology?
 What are the economic conditions in our particular market?  government regulations?
 international dimensions?
 future conditions?
 macroeconomic factors?


Economics and managerial decision making
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 Questions that managers must answer:

Should our firm be in this business?
 if so, at what price?
 and at what output level?
 How can we maintain a competitive advantage over other firms?  cost-leader?
 product differentiation?
 market niche?
 outsourcing, alliances,