Unit1 - Unit 1. Fundamentals of Managerial Economics...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Unit 1. Fundamentals of Managerial Economics (Chapter 1) While there is no doubt that luck, both good and bad, plays a role in determining the success of firms, we believe that success is often no accident. We believe that we can better understand why firms succeed or fail when we analyze decision making in terms of consistent principles of market economics and strategic action. Besanko, et. Al Economics of Strategy (2 nd ) Microeconomics is the study of how individual firms or consumers do and/or should make economic decisions taking into account such things as: 1. Their goals, incentives, objectives. 2. Their choices, alternatives, problems. 3. Constraints such as inputs, resources, money, time, technology, competition. 4. All (cash & noncash) incremental or marginal benefits and costs. 5. The time value of money. Goals, Incentives, Objectives A fundamental economic truth is that individual firms or decision makers respond to economic incentives. What these incentives are (i.e. money, profits, utility, etc.) and how they influence economic decision making are key topics for study and analysis in business (or managerial) economics. Managerial Choices (examples) Output quantity Output quality Output mix Output price Marketing and advertising Production processes (input mix) Input quantity Production location Production incentives Input procurement Michael Porters Five Competitive Forces = Decision-making constraints = Factors that influence the sustainability of firm profits 1. market entry conditions for new firms 2. Market power of input suppliers 3. Market power of product buyers 4. Market rivalry amongst current firms 5. Price and availability of related products including both substitutes and complements Marginal Analysis Analysis of marginal costs and marginal benefits due to a change Marginal = additional or incremental Costs and benefits that are constant (i.e. fixed, dont change) are excluded from the analysis Changes occurring at the margin are all that matter Marginal Analysis (Examples) Y X Incremental Y/ Incremental X TR Units of output MR TC Units of output MC TP Units of input MP TRP Units of input MRP TC Units of input MFC TU Units of good MU Profit Units of output MP New Beer Sales Resulting from Amounts Spent on TV and Radio Advertising Total Spent New Beer Sales Generated (in barrels per year) TV Radio $0 $100,000 4,750 950 $200,000 9,000 1,800 $300,000 12,750 2,550 $400,000 16,000 3,200 $500,000 18,750 3,750 $600,000 21,000 4,200 $700,000 22,750 4,550 $800,000 24,000 4,800 $900,000 24,750 4,950 $1,000,000 25,000 5,000 Max B(T,R) Subject to: T + R = 1,000,000 Example of a Business (Economic)...
View Full Document

Page1 / 42

Unit1 - Unit 1. Fundamentals of Managerial Economics...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online