1. Lecture One: Introduction to Managerial Economics
Lecturer: Jack Wu
NCCU

2. Managerial Economics
Managerial economics: Science of directing scarce resources to manage more effectively
resources – financial, human, physical
management of customers, suppliers, competitors, internal organization
organizations – business, nonprofit, household
Managerial economics is based on microeconomics.

3. NEW ECONOMY: INTERNET
Managerial Economics also applies to the new economy.
Example: In pricing, Airlines use online auctions to segment their market between business and leisure travelers.
Example: In competitive strategy, Google competes fiercely with Yahoo.

4. Old/New Economy Differences between “New” and “Old” economy:
_ role of network effects in demand
**network effects – benefit/cost depends on total number of other users
example: Internt
_ importance of economies of scale and scope
example: Information in Yahoo is scalable

5. Organization Vertical boundaries – closer to or further from end user
Samsung Electronics – vertical boundaries longer than
Intel – specializes in semiconductors (upstream)
Motorola – specializes in mobile phones (downstream)
Samsung Electronics is vertically integrated electronics manufacturer
manufactures and markets semiconductors, LCDs, mobile phones, computers, TVs

6. Organization Horizontal boundaries – scale and scope of activities
Samsung Electronics – horizontal boundaries broader than
LG.Philips LCD – specializes in LCD
Motorola – specializes in mobile phones

7. Market
Market: Buyers and sellers communicate with one another for voluntary exchange
market need not be physical
industry -- businesses engaged in the production or delivery of the same or similar items

8. Market: continued
Competitive Markets
Market Power
Imperfect Markets

9. Competitive market Benchmark for managerial economics
Extremely competitive market
many buyers and many sellers
no room for managerial strategizing
Achieves economic efficiency
Competitive market is the basic starting point of managerial economics -- where capitalist system performs best
demand
supply
market equilibrium

10. Competitive market Model: demand supply market equilibrium
Model analyzes and explains
systematic effect of prices and other economic variables on household choice and business decisions
interaction of households and businesses

11. Market power
Definition – ability of a buyer or seller to influence market conditions
Seller with market power must manage
costs
pricing
advertising expenditure
R&D expenditure
strategy toward competitors

12. Imperfect market Definition: where
one party directly conveys a benefit or cost to others, or
one party has better information than others