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Unformatted text preview: FUNDAMENTALS OF FUNDAMENTALS MANAGERIAL MANAGERIAL ECONOMICS ECONOMICS By Mark Hirschey 9th Edition Nature and Scope of Managerial Economics Managerial Chapter 1 Chapter 1 OVERVIEW How Is Managerial Economics Useful? Useful? l Theory of the Firm l Profit Measurement l Why Do Profits Vary among Firms? Firms? l Role of Business in Society l Structure of this Text l l managerial economics l theory of the firm l expected value maximization l value of the firm l present value l optimize l satisfice l business profit l normal Chapter 1 KEY CONCEPTS rate of return l economic profit l profit margin l return on stockholders' equity l frictional profit theory l monopoly profit theory l innovation profit theory l compensatory profit theory l Evaluating Choice Alternatives l Identify How Is Managerial Economics Useful? Economics l Making the Best Decision l Managerial ways to efficiently achieve goals. l Specify pricing and production strategies. l Spell out production and marketing rules to maximize profits. to economics helps meet management objectives efficiently. management l Managerial economics shows the logic of consumer, and government decisions. Theory of the Theory l Expected Value Maximization l Owner-managers Firm Firm l Constraints and the Theory of the Firm Firm l Resource profits. profits. l Primary goal is long-term expected value maximization. maximization. maximize short-run l Limitations of the Theory of the Firm Firm l Alternative constraints. l Social constraints. theory adds perspective. l Competition forces efficiency. l Hostile takeovers threaten inefficient managers. managers. Profit l Business Versus Economic Profit Profit Business (accounting) profit reflects explicit costs and reflects revenues. revenues. l Economic profit. l Measurement Measurement l Variability of Business Profits Profits l Profit above a risk-adjusted normal return. normal l Considers cash and noncash items. items. l Business profits vary widely. Why Do Profits Vary Among Firms? Among l Disequilibrium Profit Theories Theories l l Compensatory Profit Theories Theories Profits accrue to firms that are better, faster, or that cheaper than the cheaper competition. competition. l Unexpected revenue growth. growth. l Unexpected cost savings. Role of Business in Society Society l Why Firms Exist l Social Responsibility of Business Business l Businesses help satisfy consumer wants. consumer l Businesses contributes to social welfare social l Serve customers. l Provide employment opportunities. opportunities. l Obey laws and regulations. l Objectives l Structure of this Text Text Learn usefulness of economics in describing economics managerial behavior. managerial l Appreciate how economics can be used to improve can managerial decisions. managerial l Understand vital role of business in society. business ...
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