ECON 124 - MANAGERIAL ECONOMICS

Managerial Economics

Refers to the **application of economic theory** and **tools of analysis** of **decision science** to **examine how an organization can achieve its aims or objectives most efficiently**.

Managerial Economics

A science of directing scarce resources to **manage cost** effectively.

1. Competitive Markets
2. Market Power
3. Imperfect Markets

The three branches of managerial economics.

Economic Theories

Seek to predict and explain economic behavior.

The relationship between Economic Theory and Managerial Economics.

An organization can solve its **management decision problems** by the **application of economic theory** and the **tools of decision science.**

Economic Theories

Usually begins with a **model** and this abstracts from the many details surrounding the event and seeks to identify a few of the most **important determinants** of the event.

The Theory of the Firm

This assumes that the firm seeks to **maximize profits**, and on the basis of that, it predicts **how much of a particular commodity the firm should produce** under different forms of market structures or organizations.

The relationship between Decision Sciences and Managerial Economics.

Decision Sciences use the tools of **mathematical economics** and **econometrics** to c**onstruct and estimate decision models** aimed at determining the **optimal behavior of the firm**.

Mathematical Economics

Is used to **formalize the economic models** postulated by economic theory in equation form.

Econometrics

Applies statistical tools (regression analysis) to real-world data to **estimate the models** postulated by economic theory.

The relationship between the Functional Areas of Business Administration Studies and Managerial Economics.

This disciplines study the business environment in which the firm operates and such, they provide the background for managerial decision making.

The firm exist in order to save on transaction costs.

Give one reason for the existence of Firms.

Firm

An organization that **combines and organizes resources** for the purpose of **producing goods and services** for sale.

* Sole Proprietorship
* Partnership
* Corporation
* Cooperatives

The forms of business organizations that exist in the economy.

Functions of the Firm

**Purchase resources** or **inputs of labor service**, **capital, and raw materials** in order to **transform them into goods and services** for sale.

The Theory of the Firm

It is based on the assumption that the goal or objective of the firm was to **maximize current or short-term profits**.

Management Decision Problems

These **arise in any organization** when it seeks to a**chieve some goal or objective** subject to some constraints it faces.

1. Businesses
2. Old economy & New economy
3. Network effects

Managerial economics applies to these:

Scale and Scope Economies Scalability

Refers to the degree to which scale and scope of a business can be increased without a corresponding increase in cost.

Market

Defined as a group of firms and individuals that are in touch with each other in order to buy or sell some good.

Internal and External

Management Decision Problems can be?

Microeconomics and Macroeconomics

The firm would face Management Decision Problems with the application of these two models.

Mathematical Economics and Econometrics

The firm would face Management Decision Problems with the application of these decision sciences.

Once Economic theories & decision sciences are applied.

How can optimal decision to the Management Decision Problems be achieved?

Competitive Markets

There is a presence of competition because there are more than one suppliers of a particular good.

Market Power

Potential of a virm to influence the market price of a good or service by controlling its demand or supply.

Imperfect Markets

Characterized by having competition for market share, high barriers to entry and exit, different products and services, and a small number of buyers & sellers.

The Theory of the Firm

The study of managerial economics focuses on the _______.

Demand Estimation Forecasting

How much goods should the firm produce.

Overview course

Managerial Economics can be regarded as an _____ that integrates economic theory, decision sciences, and the functional areas of business administration studies and it examines how they interact with one another as the firm attempts to achieve its goals most efficiently.

General Contract

Is much less costly than numerous specific contracts. It is also highly advantageous to both the entrepreneurs and to the workers and other resource owners.

For the sake of increasing furture and long-term profits.

Some firms sacrifice short-term profits, why do they do this?

Decisions in relation to customers including pricing and advertising; suppliers; competitors; or the internal workings of the organization.

How does managerial economics apply to businesses?

Network Effects and Scale Scope Economies

2 distinctive aspects of the “new economy".