ch 01 presentation

8/13/2019 Ch 01 Presentation

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Managerial

EconomicsPrinciples and WorldwideApplications, 7th Edition

Dominick Salvatore

&

Ravikesh Srivastava


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Chapter 1:

The Nature and Scope ofManagerial Economics


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Managerial Economics

Defined

The application of economic theory and the tools of

decision science to examine how an organization can

achieve its aims or objectives most efficiently.

applications of economic theory

quantitative methods

statistical methods

computational methods


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Economic Theory

Macroeconomics

Study of the total or aggregate level of output,

income, employment, consumption,investment, and prices for the economy

viewed as a whole.

Microeconomics

Study of the economic behavior of individualdecision-making units.

Relevance to Managerial Economics.


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Decision Sciences

Mathematical Economics

Expresses and analyzes economic models

using the tools of mathematics.

Econometrics

Employs statistical methods to estimate and

test economic models using empirical data.


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Economic Methodology

Economic Models

Abstract from details

Focus on most important determinants of

economic behaviorcause and effect

Evaluating Economic Models

A model is accepted if it predicts

accurately and if the predictions followlogically from the assumptions.


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The Theory of the Firm

Combines and organizes resources for thepurpose of producing goods and/or

services for sale.

Internalizes transactions, reducingtransactions costs.

Economic theory assumes that the

primary goal of managers is to maximizethe value of the firm.


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Value of the FirmThe present value of all expected future profits


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Alternative Theories

Sales maximization

Adequate rate of profit

Management utility maximization

Principle-agent problem

Satisficing behavior


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Definitions of Profit

Business or Accounting Profit: Totalrevenue minus the explicit or accounting

costs of production.

Economic Profit: Total revenue minus theexplicit and implicit costs of production.

Opportunity Cost: Implicit value of a

resource in its best alternative use.


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Theories of Profit

Risk-Bearing Theories of Profit

Frictional Theory of Profit

Monopoly Theory of Profit

Innovation Theory of Profit

Managerial Efficiency Theory of Profit


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Social Function of Profit

Profit is a signal that guides the allocationof societys resources.

High profits in an industry are a signal thatbuyers want more of what the industryproduces.

Low (or negative) profits in an industry are

a signal that buyers want less of what theindustry produces.


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Business Ethics

Identifies types of behavior that businessesand their employees should not engage

in.

Source of guidance that goes beyondenforceable laws.


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The Changing Environment of

Managerial Economics

Globalization of Economic Activity

Goods and Services

Capital

Technology

Skilled Labor

Technological Change

Telecommunications Advances

The Internet and the World Wide Web


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Appendix: Solving Managerial

Problems Using Spreadsheets Using the test scores in column B

to the right, we can calculate the

mean, median, mode, sample

variance, sample standard deviation,and coefficient of variation of the

data.

The next table shows the formulas

used. You can either write out theentire formula or use Excel function

commands.


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Appendix: Solving Managerial

Problems Using Spreadsheets A histogram of the data can also be created. Choose Tools-

Data Analysis. In the resulting dialog box, select Histogram

and click OK.

For the input range, select the data from B1 to B10. Also

check the Chart Output and Cumulative Percentage boxes,

as seen in the following figure.

The last figure shows the results.


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