Me11 -ch. 1
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Transcript of Me11 -ch. 1
MANAGERIAL MANAGERIAL ECONOMICS 11ECONOMICS 11thth Edition Edition
ByBy
Mark HirscheyMark Hirschey
Nature and Scope of Nature and Scope of Managerial EconomicsManagerial Economics
Chapter 1Chapter 1
Chapter 1Chapter 1OVERVIEWOVERVIEW
How Is Managerial Economics Useful? Theory of the Firm Profit Measurement Why Do Profits Vary among Firms? Role of Business in Society Structure of this Text
Chapter 1Chapter 1KEY CONCEPTSKEY CONCEPTS
managerial economics theory of the firm expected value
maximization value of the firm present value optimize satisfice business profit normal rate of return
economic profit profit margin return on
stockholders' equity frictional profit theory monopoly profit theory innovation profit
theory compensatory profit
theory
How Is Managerial Economics Useful?
Evaluating Choice Alternatives Identify ways to efficiently achieve goals. Specify pricing and production strategies. Provide production and marketing rules
to help maximize net profits. Making the Best Decision
Managerial economics can be used to efficiently meet management objectives.
Managerial economics can be used to understand logic of company, consumer, and government decisions.
Theory of the Firm Expected Value Maximization
Owner-managers maximize short-run profits. Primary goal is long-term expected value
maximization. Constraints and the Theory of the Firm
Resource constraints. Social constraints
Limitations of the Theory of the Firm Alternative theory adds perspective. Competition forces efficiency. Hostile takeovers threaten inefficient
managers.
Profit Measurement Business Versus Economic Profit
Business (accounting) profit reflects explicit costs and revenues.
Economic profit. Profit above a risk-adjusted normal
return. Considers cash and noncash items.
Variability of Business Profits Business profits vary widely.
Why Do Profits Vary Among Firms?
Disequilibrium Profit TheoriesRapid growth in revenues.Rapid decline in costs.
Compensatory Profit TheoriesBetter, faster, or cheaper Better, faster, or cheaper than the competition is than the competition is profitable.profitable.
Role of Business in Society
Why Firms Exist Business is useful in satisfying
consumer wants. Business contributes to social
welfare Social Responsibility of Business
Serve customers. Provide employment opportunities. Obey laws and regulations.
Structure of this Text Objectives
Understand usefulness of economics in describing managerial behavior.
Understand how economics can be used to improve managerial decisions.
Appreciate vital role of business in society.