1. MANAGERIAL ECONOMICS 12th EditionBy
Mark Hirschey

2. Nature and Scope of Managerial Economics
Chapter 1

3. Chapter 1 OVERVIEW How Is Managerial Economics Useful?
Theory of the Firm
Profit Measurement
Why Do Profits Vary among Firms?
Role of Business in Society
Structure of this Text

4. Chapter 1 KEY CONCEPTS managerial economics theory of the firm
expected value maximization
value of the firm
present value
optimize
satisfice
business profit
normal rate of return
economic profit
profit margin
return on stockholders' equity
frictional profit theory
monopoly profit theory
innovation profit theory
compensatory profit theory

5. How Is Managerial Economics Useful?
Evaluating Choice Alternatives
Identify ways to efficiently achieve goals.
Specify pricing and production strategies.
Spell out production and marketing rules to maximize profits.
Making the Best Decision
Managerial economics helps meet management objectives efficiently.
Managerial economics shows the logic of consumer, and government decisions.

7. Theory of the Firm Expected Value Maximization
Owner-managers maximize short-run profits.
Primary goal is long-term expected value maximization.
Constraints and the Theory of the Firm
Resource constraints.
Social constraints.
Limitations of the Theory of the Firm
Alternative theory adds perspective.
Competition forces efficiency.
Hostile takeovers threaten inefficient managers.

9. Profit Measurement Business Versus Economic Profit
Business (accounting) profit reflects explicit costs and revenues.
Economic profit.
Profit above a risk-adjusted normal return.
Considers cash and noncash items.
Variability of Business Profits
Business profits vary.

10. Why Do Profits Vary Among Firms?
Disequilibrium Profit Theories
Unexpected revenue growth.
Unexpected cost savings.
Compensatory Profit Theories
Profits accrue to firms that are better, faster, or cheaper than the competition.
Innovative
Efficient
Role of Profit

11. Role of Business in Society
Why Firms Exist
Businesses help satisfy consumer wants.
Businesses contributes to social welfare
Social Responsibility of Business
Serve customers.
Provide employment opportunities.
Obey laws and regulations.