Introduction toManagerial Economics

• Economic concepts

• Economic tools

• Economic methodology

Using Economics in Managerial Decision Making

• What is economics?

• Economic rhetoric

The Economic Problem

• Questions

• Issues

• Managerial decisions

Decision Making Problems

• Product price and output

• Make or buy

• Production technique

• Inventory levels

• Foreign exchange

Economic Concepts

• Theory of consumer behavior

• Theory of the firm– Production and cost

• Theory of market structure– Competition, monopoly, oligopoly

• Terminology

Objectives of the Firm

• Profit maximization

• Cash flow

• Alternative objectives– Shareholder value

Defining Value

• Role of valuation

• Determinants of value

• Creating and capturing value

Nature of Profits

• Definition

• Sources

• Role– Incentives– Signal

Theories of Profit

• Risk-taking

• Frictional

• Monopoly rents

• Innovation

• Managerial efficiency

Principal-Agent Problem

• Conflicting motivations among groups

• Solutions

Goals in the Not-for-Profit Sector

• Maximize quantity s.t. breakeven constraint

• Maximize utility of stakeholders

• Maximize cash flows

Tools of Analysis

• Mathematics

• Statistical estimation

• Forecasting

• Linear programming

• Optimization

Methodology of Microeconomics

• Model building

• Scientific method– Framework– Theory– Hypothesis– Empirical test

• Neoclassical framework

Social Responsibility of Business

• Invisible hand

• Market imperfections

• Exploitation

• Government response