Managerial Economics: From Theory to Strategic Practice

Comprehensive flashcards covering the pillars of managerial economics, profit metrics, market rivalries, and industry forces based on lecture notes.

Bronze Age Economics

The historical era where records from Sumerian, Indus, Yangtze, and Nile civilizations showed the formal allocation of assets and resources.

Economic Thought

Ideas about how people, businesses, and governments use resources.

Bronze Age

An early period when civilizations began farming, trading, and keeping records of gooda

Sumerian

One of the first civilization that recorded trade and resources

Indus

An ancient civilization known for organized cities and trade

Yangtze

Early Chinese civilization that develop farming and commerce

Nile

Ancient Egyptian who managed farming and trade along Nile River

18th century

The period when modern economic ideas began to develop

Adam Smith

Father of Economics.

He develops free market thesis on French Enlightenment Writers.

He believed people should be free to buy and sell with little government interference

Free market

An economy where prices are decided mainly by buyers and sellers

French Enlightenment

A movement that encouraged reason, science, and freedom, influencing economists like Adam Smith

Late 19th Century

A time when economies became more scientific and mathematical

AlfredA Marshal & Leon Walras

Introduce mathematical concepts to define economies of scale

Alfred Marshall

Economist who helped explain supply, demand, and pricing

Leon Walras

Economist who used mathematics to explain how markets reach balance

20th century

The period when economic theories expanded

John Maynard Keynes & Milton Friedman

Form base theories for modern central bank polices

Adam Smith

The 18th-century figure who developed the free market thesis grounded in French Enlightenment thought.

Economies of scale

When producing more goods lowers the cost of each time

John Maynard Keynes

Believed government should spend money during economic downturns to create jobs and boost the economy

Milton Friedman

Believed free markets and controlling the money supply help keep the economy stable

Central bank policies

Actions taken by a country’s central bank to control inflation, interest rates, and the money supply

Managerial economics

The application of economic principles to help managers make better business make choices

Alfred Marshall & Walras

Late 19th-century economists who introduced mathematical concepts to define economies of scale.

Keynes & Friedman

20th-century economists whose base theories form the foundation for modern central bank policies.

Managerial Economics

The science of directing scarce resources in the most efficient manner to accomplish a firm's specific objectives.

Pillar 1: Identify Goals

The requirement for clear objectives in planning, which force distinct strategic allocations and pricing strategies.

Pillar 2: Recognize Profits

Understanding the nature and economic purpose of profit signals to maximize returns and ensure sustainable operations.

Pillar 3: Master Incentives

Constructing financial and intrinsic motivation structures to induce maximum productivity and workforce alignment.

Pillar 4: Understand Markets

Navigating market rivalries, such as buyer-seller and seller-seller, to capture maximum surplus and positioning.

Pillar 5: Time Value of Money

Applying mathematical tools like Present Value ($PV$) and Net Present Value ($NPV$) to capital budgeting and purchase decisions.

Pillar 6: Marginal Analysis

The core optimizer tool that compares incremental benefits ($MB$) with incremental costs ($MC$) to reach an optimum level where $MB = MC$.

Constraints

Restrictive limits on corporate goals, such as technology, input pricing, and regulations (e.g., shipping delays or wage floors).

Accounting Profit

A traditional metric calculated as $\text{Total Revenue} - \text{Explicit Costs}$, focusing on direct monetary expenditures.

Explicit Costs

Measurable out-of-pocket cash costs paid to outsiders, including rental leases, utility bills, and employee payroll.

Implicit Costs

Non-monetary opportunity costs representing forgiven returns on owned resources, such as an owner's time or property value.

Economic Profit

A complete operational metric representing total revenue minus both explicit expenses and implicit/opportunity costs.

Opportunity Cost

The value of the next best alternative forgone when making a specific internal or strategic choice.

Extrinsic Motivators

Tangible, physical rewards designed to force performance, such as sales commissions, 14th-month bonuses, or rice allowances.

Intrinsic Motivators

Internal satisfaction and drive originating from psychological security and value alignment, such as public commendations.

Producer-Producer Rivalry

Competition between sellers, such as Lazada and Shopee using vouchers and free shipping to capture market share.

Consumer-Consumer Rivalry

Competition between buyers for high-demand items, often governed by time-limit mechanisms during flash sales.

Present Value ($PV$)

The current worth of a sum to be received in the future, accounting for interest forgone: $PV = \frac{FV}{(1+i)^n}$.

Net Present Value ($NPV$)

The total discounted savings or inflows minus the initial cost; a negative $NPV$ indicates a project should be rejected.

Entry Threat

An industry force driven by capital startup barriers and regulatory filings; low in Philippine telecommunications due to frequency concessions.

Supplier Power

The ability of concentrated sellers to dictate terms; exceptionally high for Manila power consumers under Meralco.

Buyer Power

The ability of consumers to negotiate prices; moderate in shopping malls like SM Prime but concentrated among anchor tenants.

Substitutes

Alternative solutions like Jeepneys and Tricycles that fulfill the same utility purpose as trains during high inflation.

Industry Rivalry

Intense competition within a sector, such as Jollibee vs. McDonald's Philippines, which forces high-quality meals at tight pricing ceilings.

Implicit costs

Forgone salary (owmer’s time)

Forgone interest on capital ( savings)

Value of owner-occupied property

Depreciation or personal assets are examples of what costs

Explicit costs

Rent & utilities, exmployee wages, raw materials and equipment purchase are example of what coste

Law of supply and demand

Basic economic principle that explains how the price and quantity of goods and services are determined in a market

Law of demand

Consumer’s desire to purchase goods and services

Pov of consumers

Law of demand

When the price decreases, the quantity demanded increases, vice versa

Law of supply

When the price of a product increases, produces are willing to supply more, vice versa

Market equilibrium

Quantity demand = quantity supply

Market reaches an equilibrium price and equilibrium quantity

Buyers purchase exactly what sellers offers

Law of demand

Downward sloping

The 5 D of demand

Price of good and services

Income of buyers

Price of related goods and services

Taste and preference of consumers

Consumer expectations

Elastic

Quantity changes a lot when price changes.

Inelastic

Quantity changes only a little when price changes.

Normal goods and inferior goods

2 Parts of Income Buyers

Normal goods

Income increases, quantity demand increases

Direct relationship

Inferior Goods

Income increases, quantity demand decreases

Inverse relationship

Complimentary goods and substitute goods

2 parts of Price of Related goods and services

Complimentary goods

Demand increases, the complimentary product also increases

Ex. Car and Tires

Substitute goods

When the price of a brand increases, the cheaper of the same product in different brand increases

Ed. Coffee mate vs cream top

Law of supply

Upward sloping

Law of supply

Pov of supplier

Total ammounts of specific goods and services that are available in the market

When price increases, quantity supply increases

Direct relationship

Supply shifter

One that moves to right or to the left

Prices of inputs

Level of technology

Number of terms in the market

Taxes

Producer expectations

5 parts of Law of supply

Price of inputs

Labor, raw materials

Level of technology

Modern technology means better and faster production

Number of terms in the market

Rivals and enemies in market

Taxes

Additional cost

Producer expectations

Expectations of the producer in a specific day or holiday

Ex. Valentine’s Day > more flowers to produce

Shortage

Demand is greater than supply

Excess demand

Surplus

Excess supply

Supply is greater than demand

Equilibrium

The point where supply equals demand, giving the market price.

Marginal Analysis

Comparing the extra benefit and the extra cost of making one more decision.

Marginal Benefit (MB)

The additional gain from doing one more unit of an activity.

Marginal Cost (MB)

The additional cost of doing one more unit.

Continue only if Marginal Benefit ≥ Marginal Cost. Stop when Marginal Cost becomes greater than Marginal Benefit.

Decision Rule