Slide MGT407 Slide01
Managerial Economics in a
Global Economy, 5th Edition
by
Dominick Salvatore
Chapter 1
The Nature and Scope
of Managerial Economics
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Managerial Economics
Defined
• The application of economic theory and
the tools of decision science to examine
how an organization can achieve its
aims or objectives most efficiently.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Managerial Decision Problems
Economic theory
Microeconomics
Macroeconomics
Decision Sciences
Mathematical Economics
Econometrics
MANAGERIAL ECONOMICS
Application of economic theory
and decision science tools to solve
managerial decision problems
OPTIMAL SOLUTIONS TO
MANAGERIAL DECISION PROBLEMS
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Theory of the Firm
• Combines and organizes resources for
the purpose of producing goods and/or
services for sale.
• Internalizes transactions, reducing
transactions costs.
• Primary goal is to maximize the wealth
or value of the firm.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Value of the Firm
The present value of all expected future profits
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Alternative Theories
• Sales maximization
– Adequate rate of profit
• Management utility maximization
– Principle-agent problem
• Satisficing behavior
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Definitions of Profit
• Business Profit: Total revenue minus
the explicit or accounting costs of
production.
• Economic Profit: Total revenue minus
the explicit and implicit costs of
production.
• Opportunity Cost: Implicit value of a
resource in its best alternative use.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Theories of Profit
•
•
•
•
•
Risk-Bearing Theories of Profit
Frictional Theory of Profit
Monopoly Theory of Profit
Innovation Theory of Profit
Managerial Efficiency Theory of Profit
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Function of Profit
• Profit is a signal that guides the
allocation of society’s resources.
• High profits in an industry are a signal
that buyers want more of what the
industry produces.
• Low (or negative) profits in an industry
are a signal that buyers want less of
what the industry produces.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Business Ethics
• Identifies types of behavior that
businesses and their employees should
not engage in.
• Source of guidance that goes beyond
enforceable laws.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
The Changing Environment of
Managerial Economics
• Globalization of Economic Activity
– Goods and Services
– Capital
– Technology
– Skilled Labor
• Technological Change
– Telecommunications Advances
– The Internet and the World Wide Web
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Global Economy, 5th Edition
by
Dominick Salvatore
Chapter 1
The Nature and Scope
of Managerial Economics
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Managerial Economics
Defined
• The application of economic theory and
the tools of decision science to examine
how an organization can achieve its
aims or objectives most efficiently.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Managerial Decision Problems
Economic theory
Microeconomics
Macroeconomics
Decision Sciences
Mathematical Economics
Econometrics
MANAGERIAL ECONOMICS
Application of economic theory
and decision science tools to solve
managerial decision problems
OPTIMAL SOLUTIONS TO
MANAGERIAL DECISION PROBLEMS
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Theory of the Firm
• Combines and organizes resources for
the purpose of producing goods and/or
services for sale.
• Internalizes transactions, reducing
transactions costs.
• Primary goal is to maximize the wealth
or value of the firm.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Value of the Firm
The present value of all expected future profits
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Alternative Theories
• Sales maximization
– Adequate rate of profit
• Management utility maximization
– Principle-agent problem
• Satisficing behavior
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Definitions of Profit
• Business Profit: Total revenue minus
the explicit or accounting costs of
production.
• Economic Profit: Total revenue minus
the explicit and implicit costs of
production.
• Opportunity Cost: Implicit value of a
resource in its best alternative use.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Theories of Profit
•
•
•
•
•
Risk-Bearing Theories of Profit
Frictional Theory of Profit
Monopoly Theory of Profit
Innovation Theory of Profit
Managerial Efficiency Theory of Profit
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Function of Profit
• Profit is a signal that guides the
allocation of society’s resources.
• High profits in an industry are a signal
that buyers want more of what the
industry produces.
• Low (or negative) profits in an industry
are a signal that buyers want less of
what the industry produces.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Business Ethics
• Identifies types of behavior that
businesses and their employees should
not engage in.
• Source of guidance that goes beyond
enforceable laws.
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
The Changing Environment of
Managerial Economics
• Globalization of Economic Activity
– Goods and Services
– Capital
– Technology
– Skilled Labor
• Technological Change
– Telecommunications Advances
– The Internet and the World Wide Web
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.