The Nature and Scope of Managerial Economics-MM [Compatibility Mode]

8/6/2019 The Nature and Scope of Managerial Economics-MM [Compatibility Mode]

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The Nature and Scope

of ManagerialEconomics

Dr. Mohammad Abdul Mukhyi, SE., MM

4/18/2010 Managerial Economic 2

Economics is the social science that studies theproduction, distribution, and consumption ofgoodsand services.

Managerial economics (sometimes referred to asbusiness economics), is a branch ofeconomics thatapplies microeconomic analysis to decisionmethods of businesses or other management units.As such, it bridges economic theory and economicsin practice. It draws heavily from quantitativetechniques such as regression analysis andcorrelation, Lagrangian calculus (linear). If there is

a unifying theme that runs through most ofmanagerial economics it is the attempt to optimizebusiness decisions given the firm's objectives andgiven constraints imposed by scarcity, for examplethrough the use ofoperations research andprogramming.


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Managerial Economics

Manager A person who directs

resources to achieve astated goal.

Economics The science of making

decisions in the presenceof scare resources.

Managerial Economics The study of how to direct

scarce resources in the

way that most efficientlyachieves a managerialgoal.


The Global Trade Economy The MetropolitanBioregional Economy

MarketSectors

Commodity Agriculture (wheat, rice, soybeans,beef, coffee, bananas, etc.)ElectronicsVehiclesHigh Tech Health Care, PharmaceuticalsHardwareMass Produced Clothing, Cloth GoodsHydrocarbon-Based EnergyFinancial ServicesShort term R&D

Organic & Specialty AgricultureLocal Commerce (locallyproduced goods and services)Construction (Housing, etc.)Education (basic, lifemanagement, citizenship)Basic & Holistic Health Care &EducationHand CraftsArtsSportsChild CareElder CareHome & Yard Care

PublicGoods(The"Commons")

Global EcologyFair Trade Policies

National DefenseLong Range R&DCatastrophic Reinsurance (health, disasters, etc.)Coordination of Health, Education, Welfare(Information and infrastructure investments)Major (Corporate, Foundations, etc.) Philanthropy

Sustainable Land UseEmployment Security

Education (basic, lifemanagement, citizenship)Urban Environment & SocialWelfare ServicesConservation & RecreationLocal Philanthropy

Bernard Lietaer and Art Warmoth, 1999


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Definisi:Managerial economic refers to the application of

economic theory and the tools of analysis ofdecision science to examine how an organizationcan achieve its aims or objectives most efficiently.

The scope of managerial economics:

- Economic sciences

- Decision sciences

- Other science having an effect on to decisionmaking.


SCOPE & IMPORTANCE OFMANAGERIAL ECONOMICS:

Out of two major managerial functions served by thesubject matter under managerial economics are decisionmaking and forward planning:

Lets explore the scope for decision making:

1. Decision relating to demand.2. Decision related to Cost and production.3. Decision relating to price and market.

4. Decision relating to profit management.5. Macro economic factor.


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Relationship to economic theory

1. Micro economic

2. Macro economic

Penekanan:

1. Normative economic

2. Positif economic

Relationship to the decision sciences

Ilmu ekonomi memberikan kerangka teoritis pengambilankepusuan manajerial untuk membentuk model-model

keputusan, menganalisis pengaruh serangkaian tindakanalternatif dsan mengevaluasi hasil-hasil yang diperoleh.


Relatioinship to the functional areas ofbusiness Administration studies.

Bidang Fungsional Akuntansi, keuangan, pemasaran,personalia, produksi

Bidang alat Akuntansi, sistem informasimanajemen, ekonomi manajerial,perilaku organisasi, metode kuantitatiff,riset operasional, statistik, matematik.

Bidang khusus Perbankan, asuransi, bisnis

internasional, regulasi

Mata kuliahterpadu

Kebijakan perusahaan, ekonomimanajerial


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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.


Economic vs. AccountingProfits

Accounting Profits

Total revenue (sales) minus dollar cost ofproducing goods or services

Reported on the firms income statement

Economic Profits

Total revenue minus total opportunity cost


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Opportunity Cost

Accounting CostsThe explicit costs of the resources needed to

produce produce goods or services

Reported on the firms income statement

Opportunity Cost

The cost of the explicit and implicit resourcesthat are foregone when a decision is made

Economic Profits

Total revenue minus total opportunity cost


Why Do Profits Vary AmongFirms?

Disequilibrium Profit Theories

Rapid growth in revenues.

Rapid decline in costs.

Compensatory Profit Theories

Better, faster, or cheaper thanthe competition is profitable.


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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.



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Market Interactions

Consumer-Producer Rivalry Consumers attempt to locate low prices, while

producers attempt to charge high prices

Consumer-Consumer Rivalry

Scarcity of goods reduces the negotiating power ofconsumers as they compete for the right to thosegoods

Producer-Producer Rivalry

Scarcity of consumers causes producers to competewith one another for the right to service customers

The Role of Government Disciplines the market process


The Theory of The Firm

Model dasar perusahaan bisnis teori perusahaan

Tujuan : mamaksimisasi kekayaan atau nilaiperusahaan (nilai sekarang = PV).

=

=

+

=

+=

+

++

+

+

+

=

n

1tt

tt

n

1tt

t

n

n

2

2

1

1

i)(1

TCTRNilai

i)(1PV

i)(1....

i)(1i)(1PV


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Constraint on the operationof the firm

Constraint :

1. Sumberdaya

2. Kuantitas dan kualitas output

3. Hukum


Firm Valuation The value of a firm equals the present value of

all its future profits

PV = S pt / (1 + i)t

If profits grow at a constant rate, g < i, then: PV = po ( 1+i) / ( i - g), po = current profit level.

Maximizing Short-Term Profits

If the growth rate in profits < interest rate and both

remain constant, maximizing the present value of allfuture profits is the same as maximizing currentprofits.


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Control Variables

Output

Price

Product Quality

Advertising

R&D

Basic Managerial Question: How much of

the control variable should be used tomaximize net benefits?

Marginal (Incremental)Analysis


Net Benefits

Net Benefits = Total Benefits - Total Costs

Profits = Revenue - Costs


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Marginal Benefit (MB)

Change in total benefits arising from achange in the control variable, Q:

MB = DB / DQ

Slope (calculus derivative) of the totalbenefit curve


Marginal Cost (MC)

Change in total costs arising from a changein the control variable, Q:

MC = DC / DQ

Slope (calculus derivative) of the total costcurve


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Marginal Principle

To maximize net benefits, the managerialcontrol variable should be increased upto the point where MB = MC

MB > MC means the last unit of thecontrol variable increased benefits morethan it increased costs

MB < MC means the last unit of thecontrol variable increased costs more

than it increased benefits


The Geometry of Optimization

Q

Benefits & CostsBenefits

Costs

Q*

B

CSlope = MC

Slope =MB


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Literatur

Michael R. Baye, Managerial Economics andBusiness Strategy, 6e. The McGraw-HillCompanies, Inc., 2008

Dominick Savatore, Managerial Economic,Oxford University Press, 2007

Mark Hirschey, MANAGERIAL ECONOMICS11th Edition

Problem1. Review the decision criteria that you took into

account in choosing your college or university; inwhat sense was the choice a managerial decision?...an entrepreneurial decision?

2. Explain how the existence of multiple possiblegoals may be accommodated in a decisionanalysis.

3. 3. Explain how the achievement of profit in thebusiness firm may be a by-product of otheractivities rather than an object of direct pursuit;what are the managerial implications?


The Nature and Scope of Managerial Economics-MM [Compatibility Mode]

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