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Lecture 1

Introduction to

Manager a Econom cs

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Introduction. The nature of managerial

economic decision making

Managerial economic

as an economics

discipline

The role of managerial

economics in

managerial decision

op on

Economicoptimisation

ma ng

The value of firm

Economic constraints

The basic economic

variables

eman

Supply

Costs

2

Revenue

Profit

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Demand analysis and estimation

Market demand

Market supply

Market equilibrium

Price, cross-price, and income

elasticity of demand

Normal versus inferior good

Implication: optimal pricing policy

Implication: optimal level of

advertising

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Production and Costs

Production functions

Factors of production

Total, marginal and averageproduct, revenue and costs

scale

Firm and plant size

Economies and diseconomies of

scale

Optimal level of single input and

inputs

Fixed and variable costs

Explicit and implicit costs

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Short run versus long run in cost

analysis

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Competition, market structures and

business decisions

How does competition affect

business decisions in different

market structures?

Perfect competition; monopoly;

oligopoly; monopolistic

competition, Monopoly/monopsony

confrontation

Competitive strategies.

Measurement of market structures

Market strategies in differentmarket structures.

Non-price competition.

5

Multinational companies. Vertical

and horizontal coordination.

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Pricing strategies and practices

What prices should be set?

Mark-u ricin

Competitive strategies.

Price discrimination.

Bundle pricing

Multiple and joint product pricing.

Transfer pricing

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Business and Government

The impact of regulation,

deregulation and taxation policy on

decision making, competitiveness

and efficiency.

Reasons for regulation. Regulatory

response to incentive and

.

Taxes and subsidies

Anti-Trust Policies.

Problems with regulation

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Capital budgeting

Capital budgeting process

Decision rules

Cash flow estimation

Alternative projects

Cost of capital.

Optimal capital budgeting

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Business and current economic

situationResearch topic

What would be the impact of

high/low interest rates on costs or

ca ital bud etin ?

How important, to managerial and

marketing decisions, are changes

in

foreign exchange rates, in interest

rates, in incomes, in the balance of

,

etc

, ,

etc

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Topic 1.Introduction: The nature of

making

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Competition,

market structures and Pricing strategies and

business decisions

Business and Government.

,

technological changes and

industrial innovations

Capital budgeting

Managerial

EconomicsDemand analysis

and estimation

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Business and current

economic situation.

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Introduction. The nature of managerial

economic decision making

Managerial economic

as an economics

discipline

The role of managerialeconomics in

managerial decision

op onEconomicoptimisation

ma ng

The value of firm

Economic constraints

The basic economic

variables

eman

Supply

Costs

12

Revenue

Profit

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Introduction. The nature of managerial economic decision making

Learning objectives

This topic is deals with the nature and the scope of

Mana erial Economics as a whole.

The place of Managerial economics in the Economicsdiscipline.

How do managers make their decisions?

The elements of the economic theory of firm that we need

making are:

Economic optimisation;

The value of firm;

Economic constraints;

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The basic economic variables, including demand

supply, costs, revenue and profit.

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Introduction. The nature of managerial economic decision making

Reading

Mansfield, Chapter 1.

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Introduction. The nature of managerial economic decision making

Managerial economic as an economics discipline

Economics

Macroeconomics Microeconomics

Money, finance, banking Sector economics

Labor economics

EC

Managerial economics

International Economics

Re ional Economics

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Economic Development

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Introduction. The nature of managerial economic decision making

The role of managerial economics in managerial decision making

Product price and output

Make or buy

Production technique

n erne s ra egy

Advertising media and intensityInvestment and financing

Economic concepts

Theory of consumer behaviour

Theory of firm

Theory of market structures and

Decision making tools

Numerical analysis

Statistical analysis

Forecasting

pricing Game theory

Optimisation

Managerial Economics

Use of economics concepts and

decision making tools to solve

managerial decision problems

16Optimal solutions

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Introduction. The nature of managerial economic decision making

The role of managerial economics in managerial decision making

The Process of decision-making

Identify objectives

Define the problem

y u

Select the best possible solution

Implement the decision

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Introduction. The nature of managerial economic decision making

Economic

optimisation

Marginal value

The marginal value of a dependent variable

s e s epen en var a e

associated with a 1-unit aparticular independent variable

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Introduction. The nature of managerial economic decision making

Economic

optimisation

Choose alternative

that produces a result the most

with managerial objective

What is the primary

managerial objective?

Profit maximisation?

The value of firm

maximisation?

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Profit per employee

maximisation?

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Introduction. The nature of managerial economic decision making

m e resourses

Labour

Capital

nance

Raw materials

Environment

Limited capacity of market

Demand

20Choice/Opportunity cost