Mar. Mana.

Chapter 1

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Introduction

Economics and managerial decision making

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 Economics: The study of the behavior of human

beings in producing, distributing and consuming material goods and services in a world of scarce resources  Management: The science of organizing and allocating a firm’s scarce resources to achieve its desired objectives  Managerial economics: The use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources

Economics and managerial decision making

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 Relationship to other business disciplines

Marketing: demand, price elasticity Finance: capital budgeting, breakeven analysis, opportunity cost, value added Management science: linear programming, regression analysis, forecasting Strategy: types of competition, structureconduct-performance analysis Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost

The Economics of Effective Management

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 An effective manager must

(1) identify goals and constraints; (2) recognize the nature and importance of profits; (3) understand incentives; (4) understand markets; (5) recognize the time value of money; and (6) use marginal analysis.

Economics and managerial decision making

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 Questions that managers must answer:

What are the economic conditions in our particular market?  market structure?  supply and demand?  technology?  What are the economic conditions in our particular market?  government regulations?  international dimensions?  future conditions?  macroeconomic factors?



Economics and managerial decision making

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 Questions that managers must answer:

Should our firm be in this business?  if so, at what price?  and at what output level?  How can we maintain a competitive advantage over other firms?  cost-leader?  product differentiation?  market niche?  outsourcing, alliances, mergers?  international perspective?

...