Post on 13-Dec-2015
DEFINING MANAGERIAL ECONOMICS
Managerial economics: Science of directing scarce resources to manage more effectively
resources – financial, human, physical management of customers, suppliers,
competitors, internal organization organizations – business, nonprofit,
household
SCOPE OF MANAGERIAL ECONOMICS
Managerial econ is based on microeconomics.
Microeconomics Microeconomics is the study of how individual
households and firms make decisions and how they interact with one another in markets.
Macroeconomics Macroeconomics is the study of the economy as
a whole.
EXAMPLE: INCREASE IN OIL PRICE
Micro effect: vehicle users, electronic power generators
Macro effect: inflation, unemployment
NEW ECONOMY: INTERNET
Managerial Economics also applies to the new economy.
Example: In pricing, Airlines use online auctions to segment their market between business and leisure travelers.
OLD/NEW ECONOMY
Differences between “New” and “Old” economy:
(1) role of network effects in demand **network effects – benefit/cost depends on
total number of other users example: Internet (2) importance of economies of scale and
scope example: Information in Yahoo is scalable
METHODOLOGY
economic model – concise description of behavior and outcomes
marginal vis-à-vis average stock vis-à-vis flow other things equal (Ceteris Paribus) Timing
static model – single point in time dynamic model – focus on sequence of actions
and payments
ORGANIZATION
Vertical boundaries – closer to or further from end user
Samsung Electronics – vertical boundaries longer than Intel – specializes in semiconductors (upstream) Motorola – specializes in mobile phones
(downstream)
ORGANIZATION
Horizontal boundaries – scale and scope of activities
Samsung Electronics – horizontal boundaries broader than LG.Philips LCD – specializes in LCD Motorola – specializes in mobile phones
MARKET
Market: Buyers and sellers communicate with one another for voluntary exchange
market need not be physical industry -- businesses engaged in the
production or delivery of the same or similar items
COMPETITIVE MARKET
Benchmark for managerial economics Extremely competitive market
many buyers and many sellers no room for managerial strategizing
Achieves economic efficiency
MARKET POWER
Definition – ability of a buyer or seller to influence market conditions
Seller with market power must manage costs pricing advertising expenditure R&D expenditure strategy toward competitors