2 Chapter Outline Economics and managerial decision making Review of economic terms and concepts
3 Learning ObjectivesDefine managerial economics and discuss briefly its relationship to microeconomics and other related fields of study such as finance, marketing, and statistics.Cite and compare the important types of decisions that managers must make concerning the allocation of a company’s scarce resources.Compare the three basic economic questions from the standpoint of both a country and a company.
4 Economics and Managerial Decision Making The study of the behavior of humanbeings in producing, distributing andconsuming material goods andservices in a world of scarce resources.
5 Economics and Managerial Decision Making ManagementThe science of organizing and allocating afirm’s scarce resources to achieve itsdesired objectives.
6 Economics and Managerial Decision Making Managerial economicsThe use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources.This is a good point to discuss how the objectives of economic analysis provides valuable information for business decisions.
7 Economics and Managerial Decision Making Relationship to other business disciplines
8 Economics and Managerial Decision Making Questions that managers must answer:What are the economic conditions in our particular market?market structure?supply and demand?technology?These questions are consider the effects of consumer decisions, costs of production, and level of competition.
9 Economics and Managerial Decision Making Questions that managers must answer:Should our firm be in this business?if so, at what price?at what output level?can the firm achieve a sustainable competitive advantage?
10 Economics and Managerial Decision Making Questions that managers must answer:What are additional economic conditions in our particular market?government regulations?international dimensions?future conditions?macroeconomic factors?This is a good place to discuss examples of each of these factors on a business. Students should be able cite business examples.
11 Economics and Managerial Decision Making Questions that managers must answer:What is our strategy to maintain a competitive advantage in the market?cost-leader?product differentiation?market niche?outsourcing, alliances, mergers?international perspective?Another good slide for discussion of business cases. What are examples of each of these strategies?
12 Economics and Managerial Decision Making Questions that managers must answer:What are the risks involved?changes in demand and supply conditions?technological changes and the effect of competition?changes in interest and inflation rates?exchange rate changes for companies engaged in international trade?political risk for companies with foreign operations?Discussion of the risk and the financial crisis of can be used to illustrate the importance of properly estimating risk.
13 Review of Economic Terms and Concepts The economics of a business refers to the key factors that affect the firm’s ability to earn an acceptable rate of return on its owners’ investment.The most important of these factors arecompetitiontechnologycustomers
14 Review of Economic Terms and Concepts Microeconomics is the study of individual consumers and producers in specific markets, especially:supply and demandpricing of outputproduction processcost structuredistribution of income
15 Review of Economic Terms and Concepts Macroeconomics is the study of the aggregate economy, especially:national output (GDP)unemploymentinflationfiscal and monetary policiestrade and finance among nations
16 Review of Economic Terms and Concepts Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people.Opportunity cost is the amount (or subjective value) that must be sacrificed in choosing one activity over the next best alternative.
17 Review of Economic Terms and Concepts The Nature of Scarcity
18 Review of Economic Terms and Concepts Allocation decisions must be made because of scarcity. Three choices:What should be produced?How should it be produced?For whom should it be produced?
19 Review of Economic Terms and Concepts 3 Systems to answer the what, how and for whom questionsMarket process: The use of supply, demand, and material incentivesCommand process: The use of the government or some central authorityTraditional process: The use of customs and traditions
20 Review of Economic Terms and Concepts 3 Basic economic questions - Country and company
21 Review of Economic Terms and Concepts Entrepreneurship is the willingness to take certain risks in the pursuit of goalsManagement is the ability to organize resources and administer tasks to achieve objectives
22 SummaryManagerial economics is a discipline that combines microeconomic theory with management practice.An important function of a manager is to decide how to allocate a firm’s scarce resources.The application of economic theory and concepts helps managers make allocation decisions that are in the best economic interests of their firms.