Introduction to Managerial Economics PDF

Introduction to Managerial Economics The Manager A person who directs resources to achieve a stated goal. ○ Direct the efforts of others, including those who delegate tasks within an organization such as a firm, a family, or a club. ○ Purchase inputs...

Introduction to Managerial Economics The Manager A person who directs resources to achieve a stated goal. ○ Direct the efforts of others, including those who delegate tasks within an organization such as a firm, a family, or a club. ○ Purchase inputs to be used in the production of goods and services such as the output of a firm, food for the needy, or shelter for the homeless. ○ Are in charge of making other decisions, such as product price or quality. Economics Economics is the science of making decisions in the presence of scarce resources. Managerial economics The study of how to direct scarce resources in the way that most efficiently achieve a managerial goal Principles of Effective Management 1. Identify Goals and Constraints In economics, "Identify Goals and Constraints" refers to the process of clearly defining the objectives a decision-maker or organization wants to achieve and recognizing the limitations or restrictions they face in achieving these objectives. ○ Goals: These are the desired outcomes, like maximizing profits, increasing market share, or improving a grade. Different departments or individuals may have varying goals within a firm or organization, and each goal will require a different approach. ○ Constraints: These are the factors that limit the ability to achieve goals, often because resources are scarce. Constraints can include time (e.g.,  only 24 hours in a day), financial resources (e.g., a limited budget), or technological capabilities. 2. Recognize the Nature and Importance of Profits Nature of Profits: ○ Accounting profits are what a business earns after subtracting its direct costs (like materials and wages) from its revenue. ○ Economic profits consider not only direct costs but also the value of other opportunities the business owner gives up, like working another job or renting out a building. Importance of Profits: ○ Profits guide businesses on how to use resources efficiently and create products or services that people need. ○ Even though profit-seeking seems self-interested, it often helps society by encouraging businesses to provide valuable goods and services. In short, understanding how profits work and why they matter is key to running a successful business and benefiting the economy. economic profits The difference between total revenue and total opportunity cost. opportunity cost The explicit cost of a resource plus the implicit cost of giving up its best alternative use. 3. Understand incentives incentives affect how resources are used and how hard workers work. To succeed as a manager, you must have a clear grasp of the role of incentives within an organization such as a firm and how to construct incentives to induce maximal effort from those you manage.  4. understand markets In studying microeconomics in general, and managerial economics in particular, it is important to bear in mind that there are two sides to every transaction in a mar- ket: For every buyer of a good there is a corresponding seller. ○ Consumer–Producer Rivalry ○ Consumer–Consumer Rivalry ○ Producer–Producer Rivalry ○ Government and the Market 5. recognize the time value of money 6. Use marginal analysis. marginal analysis states that optimal managerial decisions involve comparing the marginal (or incremental) benefits of a decision with the marginal (or incremental) costs. Application of PVA Present Value The amount that would have to be invested today at the prevailing interest rate to generate the given future value.  Market Forces Demand/Supply Quantitative Analysis (Elasticity) Theory of Consumer Behavior FORMULAS PV 𝐹𝑉 𝑛 (1+𝑖) NPV 𝐹𝑉 𝑛 − 𝐶0 (1+𝑖)