ManEconCh01 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  1 Introduction
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OBJECTIVES Provide a guide to making good managerial  decisions. Use formal models to analyze the effects of  managerial decisions on measures of a firm's  success.
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MANAGERIAL ECONOMICS Differs from microeconomics Microeconomics focuses on description. Managerial economics is prescriptive. Is an integrative course Brings the various functional areas of business together  in a single analytical framework E xhibits economies of scope Integrates material from other disciplines  Reinforces and enhances understanding of those  subjects
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THE THEORY OF THE FIRM M anagerial Objective Make choices that increase the value of the firm. The value of the firm is defined as the present value of  future profits.
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THE THEORY OF THE FIRM Managerial Choices Influence total revenue by managing demand Influence total cost by managing production Influence the relevant interest rate by managing  finances and risk M anagerial Constraints Available technologies Resource scarcity Legal or contractual limitations
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WHAT IS PROFIT? T wo Measures of Profit Accounting Profit Historical costs Legal compliance Reporting Requirements Economic Profit Market Value Opportunity, or implicit cost More useful measure for managerial decision making
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PROFIT Measures the quality of managers' decision- making skills Encourages good management decisions  by linkage with incentives
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SOURCES OF PROFIT Innovation Producing products that are better than existing  products in terms of functionality, technology, and style
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This note was uploaded on 03/30/2011 for the course ECON 3020 taught by Professor Lucas during the Spring '10 term at Hawaii Pacific.

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ManEconCh01 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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