MBA (Evening) ProgramCourse Title: Managerial EconomicsCourse No: 6208Semester: Summer 2015Batch: 6th

Section B, Friday, 03:00-6:00 pm, Room:317 Section A, Friday, 06:00-9:00 pm, Room:317

Course Instructor: Md. Nazmul Islam, ACMAOffice Room # 308Email: nazmul8108@gmail.com

Text BookManagerial Economics: Concepts and Applications (9th edition) by

Christopher R. Thomas and S. Charles Maurice

Father of Economics

Adam Smith (5 June 1723 17 July 1790) was a Scottish moral philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is best known for two classic works: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. Smith is cited as the "father of modern economics" and is still among the most influential thinkers in the field of economics today.

David Hume was a friend and contemporary of Smith. Portrait of Smith's mother, Margaret Douglas

Drive Rental Car or Co. Car?Sue has been asked by her boss to attend a business meeting 125 miles away. She has two alternatives for getting to the meeting and back: 1) rent a car for $50 plus fuel costs or 2) drive a company-owned car. Her boss has asked her to choose the cheapest form of transportation for the company. What should Sue do?

Buy New Book or Used Book?Joe has signed up to take an Econ class which is about to begin. His instructor expects him to read material from the textbook and to access/use on-line supplements. Joe has two alternatives: 1) buy a new book for $120 which gives him the supplements at no additional charge or 2) buy a used book for $70 which does not include the supplements so they would have to be purchased separately for $35. What should Joe do?

How Much to Spend on TV and Radio Advertising?Max B(T,R)Subject to: T + R = 1,000,000

Total SpentNew Beer Sales Generated (in barrels per year)TVRadio$000$100,0004,750950$200,0009,0001,800$300,00012,7502,550$400,00016,0003,200$500,00018,7503,750$600,00021,0004,200$700,00022,7504,550$800,00024,0004,800$900,00024,7504,950$1,000,00025,0005,000

Deal or No DealReports have it that the native Americans who originally owned Manhattan Island sold it in 1626 for $24. Meanwhile, in 1984 it was estimated that the value of that property was $23 billion. Was selling the land for $24 in 1626 a mistake?

Its easy to identify successful strategies (and the reasons for their success) or failed strategies (and the reasons for their failures) in retrospect. Its much more difficult to identify successful or failed strategies before they succeed or fail.Luke Frueb and Brian McCannManagerial Economics (2008)

While there is no doubt that luck, both good and bad, plays a role in determining the success of firms, we believe that success is often no accident. We believe that we can better understand why firms succeed or fail when we analyze decision making in terms of consistent principles of market economics and strategic action.Besanko, et. AlEconomics of Strategy (2nd)

What is Economics?Accounting is an information systems which indentifies, records, and communicates the economic events of an organization to interested users.

Accountancy, or accounting, is the production of information about an enterprise and the transmission of that information from people who have it to those who need it.

The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is representationally faithful.

Managerial EconomicsManagerial economics provides a systematic, logical way of analyzing business decisions that focuses on the economics forces that shape both day-to-day decisions and long-run planning decisions. It applies microeconomic theorythe study of the behavior of individual economic agentsto business problems in order to teach business decision makers how to use economic analysis to make decisions that will achieve the firms goal: the maximization of profit.

Managerial decision areas include:

assessment of investible fundsselecting business areachoice of productdetermining optimum outputdetermining price of productdetermining input-combination and technologysales promotion.

Economics of BusinessEconomic Cost of Using Resources:The economic cost of using resources to produce a good or service is the opportunity cost to the owners of the firm using those resources.

Types of Inputs or resources1. Market-Supplied Resources: resources owned by others and hired, rented, or leased by the firm. Examples: labor, raw materials, capital equipment.2. Owner-supplied resources: resources owned and used by a firm. 3 most important types are:MoneyTime and laborLand, building, capital equipment

Total Economic CostSum of opportunity costs of market-supplied resources plus opportunity costs of owner-supplied resources.The opportunity costs of using market-supplied resources are the out-of-pocket monetary payments made to the owners of resources. (Explicit Costs)The nonmonetary opportunity costs or using a firms own resources are called implicit costs.

Economic Profit Vs Accounting ProfitEconomic Profit = Total revenue Total economic Cost =Total revenue - Explicit Costs Implicit costs

Accounting Profit = Total revenue Explicit costs

Maximizing the value of the firmValue of a firm: The price for which the firm can be sold, which equals the present value of future profits.

Separation of ownership and controlAgency Problem: Conflict of interest between principal and agent.The agency problem occurs because of moral hazard.Moral hazard exists when either party to an agreement has an incentive not to abide by all provisions of the agreement and one party cannot cost effectively monitor the agreement.

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