BEC 30325: MANAGERIAL ECONOMICS Introduction to

Transcript:BEC 30325: MANAGERIAL ECONOMICS Introduction to:
BEC 30325: MANAGERIAL ECONOMICS Introduction to Managerial Economics Session 01 Dr. Sumudu Perera Nature and scope of Managerial Economics Goals and Constraints of business organizations The Theory of the firm The nature and importance of profit Economic Profit and Accounting Profit Quantitative techniques in Managerial Economics Session Outline Managerial Economics Managerial Economics is the integration of economic theory with decision science tools, so as to make decision making effective and efficient. The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently. Managerial Economics deals with: “How decisions should be made by managers to achieve the firm’s goals-in particular, how to maximize profit” 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 Economics Vs. Managerial Economics Economics Study of economic theory Belongs to positive economics Examine the human behavior on using scarce resources on unlimited needs and wants Limited Scope Managerial Economics Application of economic theory Belongs to normative economics Study the way of applying economic theory for decision making in firms Wide scope 6 Why is Managerial Economics Important? To estimate economic relationships To make decisions related to internal issues Effectively utilize resources (What/how much/how/to whom, to produce) Pricing Face price and non-price competitions Maximizing sales, revenues, profits To identify the impact of external factors on the firm To use theoretical concepts in economics to actual behavior of firms A powerful “analytical engine”. 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. Example -Theory of the Firm Mr. Smith, an entrepreneur decides to set up a company by recruiting people to work for wages, by purchasing a property for the workplace machinery for the factory. He believes that it is very much efficient and less costly to run a business through a firm, rather than him doing everything alone. He believes that a general contract agreed with laborers to perform a number of tasks for specific wages and benefits is less costly than specific contacts for each task undertaken. He can also internalize many functions such as Finance, Marketing, IT, Research and Development etc without giving