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INTRODUCTION TO BUSINESS ADMINISTRATION: ECONOMICS (MANAGERIAL ECONOMICS, Part I) Lecturer: Ekaterina Vladimirovna Sokolova (Public Administration Department)

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Presentation on theme: "INTRODUCTION TO BUSINESS ADMINISTRATION: ECONOMICS (MANAGERIAL ECONOMICS, Part I) Lecturer: Ekaterina Vladimirovna Sokolova (Public Administration Department)"— Presentation transcript:

1 INTRODUCTION TO BUSINESS ADMINISTRATION: ECONOMICS (MANAGERIAL ECONOMICS, Part I) Lecturer: Ekaterina Vladimirovna Sokolova (Public Administration Department)

2 Course Structure (Economics or Managerial Economics, Part I) Topic 1. Basics of economic analysis Topic 2. Demand and supply –Topic 2.1. Individual consumer demand –Topic 2.2. Market demand and supply Topic 3. Production analysis and cost analysis –Topic 3.1. Production policy –Topic 3.2. Theory of cost Topic 4. Market structure analysis –Topic 4.1. Perfect competition and monopoly –Topic 4.2. Monopolistic competition and oligopoly

3 Grading Policy MIB (Economics) 70% - mid-term (or final) exam 30% - individual in-class assignments MITIM (Managerial Economics) 2 grades 1 st : 70% - mid-term (final for MIB) exam 30% - individual in-class assignments 2 nd : 70% - final exam (Winter session, Managerial Economics, Part II) 30% - individual in-class assignments (Managerial Economics, Part II) Final grade = 1 st *1/3 + 2 nd * 2/3

4 Economics (Managerial Economics, Part I), Final Evaluation (Mid-term or final exam) 35 points for written mid-term exam (for MITIM students) or final exam (for MIB students)

5 Economics (Managerial Economics, Part I), Current Evaluation 15 points for 3 in-class assignments (5 points each) –after the end of the corresponding group of topics –each assignment includes 5 multiple choice questions The student can receive 5 points for each group of topics and these points will be considered in final mark –respectively the individual assignment can give 15 points

6 Economics (Managerial Economics, Part I), Individual In-class Assignments Three individual assignments (after the end of the corresponding group of topics) Each assignment includes 3 tasks –The student can receive 3 points for each group of topics and these points will be considered in final mark Respectively the individual assignments give 12 points for final mark

7 In-class Group Work In-class group work will take place at seminars Discussion of cases and answering given questions Doesn’t give any points for final mark

8 Literature Microeconomics: Optimization, Experiments, and Behaviour. Burkett, John P Oxford Univ. Press., Source: Microeconomics Demystified. Depken, Craig The McGraw-Hill Companies., Source: Baye M. Managerial Economics and Business Strategy [Text] / M. Baye. – McGraw-Hill, – 620 p.

9 Topic 1. Basics of economic analysis Economics – the science of making decisions in the presence of scarce resources

10 Managerial Economics vs. Microeconomics: Common and Different Microeconomics Managerial Economics How should the prices be set? In which way were the prices set? Computer Manufacturer (e.g.: IBM) Similar concepts

11 Opportunity Cost Def #1: the cost of the explicit and implicit resources that are forgone when a decision is made Def #2: the value of the other products that the resources used in its production could have produced instead The opportunity cost of using a resource includes both the explicit (or accounting) cost of the resource and the implicit cost of giving up the next-best alternative use of the resource

12 Economic vs. Accounting Profits Def : Accounting profit – the total amount of money taken in from sales (total revenue, or prices times quantity sold) minus the money cost of producing goods or services Def : Economic profit – the difference between total revenue (TR) and total opportunity cost (TC)

13 Reasons for the Existence of Profit Innovation Risk Monopoly power

14 The Five Forces Framework and Industry Profitability Entry Power of input suppliers Industry (market) rivalry Substitutes and complements. Power of buyers

15 Incentives Def: Incentives – affect how resources are used and how hard employees work –E.g.: “A manager should be doing a good job” – mistake But!: the effect of a per hour salary for workers to increase output

16 Markets Consumer-producer rivalry Consumer-consumer rivalry Producer-producer rivalry Government and the market

17 Managerial Interests and Sales Maximization Separation of ownership from control in large corporations Sales represent a measure of management’s success, especially since many observers focus attention on a firm’s share of the market as an indicator of its performance

18 Economic Optimization Process

19 Choices involve benefits and costs Optimal decision – choice alternative that produces a result most consistent with managerial objectives

20 Profit Maximization Maximizing profit means maximizing the value of the firm, which is the present value of current and future profits

21 The Role of Constraints Value of firm Input, legal, and other constraints Limited by equals The value of i depends on: Values of TR t depend on: Values of TC t depend on: 1. Riskiness of firm 2. Conditions in capital market 1. Demand and forecasting 2. Pricing 3. New product developing 1. Production techniques 2. Cost functions 3. Process development

22 Expressing Economic Relations spreadsheet – table of electronically stored data graph – visual representation of data equation – analytical expression of functional relationship dependent variable – Y variable determined by X values independent variable – X variable determined separately from the Y variable

23 Total, Average, and Marginal Relations (1) Marginal – change in the dependent variable caused by a 1-unit change in an independent variable –Marginal revenue –Marginal cost –Marginal profit

24 Total, Average, and Marginal Relations (2) Units of output, Q Total profits,  Marginal profits,  Average profits,

25 Graphing Total, Marginal, and Average Relations Marginal profit is the slope of the total profit curve Total profit is maximized when the marginal profit equals zero Average profit rises (falls) when marginal profit is greater (less) than average profit

26 Marginal Analysis in Decision Making Finding maximums or minimums Distinguishing maximums from minimums Maximizing the difference between two functions

27 Multivariate Optimization The marginal effect of each independent variable on the dependent variable –holding constant the effect of all other independent variables Partial derivatives –The unchanged variables are treated as constants in the differentiation process

28 Incremental Concept in Economic Analysis Marginal relations measure only the effect associated with unitary changes in variables The incremental concept is often used as the practical equivalent of marginal analysis Def: Incremental change is the total change resulting from a decision –E.g.: Incremental profit is the profit gain or loss associated with a given decision


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