Chapter1 - MANAGERIAL ECONOMICS An Analysis of Business...

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1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
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2 Chapter 1: The Definition and Scope of Managerial Economics Objectives: After studying the chapter, you should understand: 1. the subject matter of Managerial Economics 2. the analytical approach used in Managerial Economics
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3 What is Managerial Economics? Douglas - “Managerial economics is . . the application of economic principles and methodologies to the decision-making process within the firm or organization.” Pappas & Hirschey - “Managerial economics applies economic theory and methods to business and administrative decision-making.” Salvatore - “Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most effectively.”
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4 What is Managerial Economics? Howard Davies and Pun-Lee Lam - “It is the application of economic analysis to business problems; it has its origin in theoretical microeconomics.”
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5 These Definitions Cover a Number of Different Approaches 1. Analysis based on the theory of the firm 2. Analysis based upon management sciences 3. Analysis based upon industrial economics Related to, but not the same as management science and industrial economics.
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6 The Process of Model-building The economics ‘method’ ‘illicit relationships with beautiful models’ The steps:the hypothetical-deductive approach make assumptions about behaviour work out the consequences of those assumptions make predictions test the predictions against the evidence PREDICTIONS SUPPORTED? The model is accepted as a good explanation (for the moment) PREDICTIONS REFUTED? Go back and re-work the whole process
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7 Definitions assumptions Predictions If predictions not supported by data, model is amended or discarded If predictions borne out by data, the model is valid, for the moment Theoretical analysis Predictions tested against data
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8 Should Assumptions be Realistic?
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This note was uploaded on 08/07/2011 for the course PMBA 2963.2 taught by Professor Stephenchiu during the Spring '03 term at HKU.

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Chapter1 - MANAGERIAL ECONOMICS An Analysis of Business...

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