2. Nature and Scope of Managerial Economics 3. Chapter 1
OVERVIEW
- How Is Managerial Economics Useful?
- Why Do Profits Vary among Firms?
- Role of Business in Society
4. Chapter 1 KEY CONCEPTS
- expected value maximization
- return on stockholders' equity
- compensatory profit theory
5. How Is Managerial Economics Useful?
- Evaluating Choice Alternatives
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- Identify ways to efficiently achieve goals.
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- Specify pricing and production strategies.
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- Provide production and marketing rules to help maximize net
profits.
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- Managerial economics can be used to efficiently meet management
objectives.
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- Managerial economics can be used to understand logic of
company, consumer, and government decisions.
6. 7. Theory of the Firm
- Expected Value Maximization
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- Owner-managers maximize short-run profits.
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- Primary goal is long-term expected value maximization.
- Constraints and the Theory of the Firm
- Limitations of the Theory of the Firm
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- Alternative theory adds perspective.
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- Competition forces efficiency.
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- Hostile takeovers threaten inefficient managers.
8. 9. Profit Measurement
- Business Versus Economic Profit
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- Business (accounting) profit reflects explicit costs and
revenues.
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- Profit above a risk-adjusted normal return.
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- Considers cash and noncash items.
- Variability of Business Profits
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- Business profits vary widely.
10. Why Do Profits Vary Among Firms?
- Disequilibrium Profit Theories
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- Rapid growth in revenues.
- Compensatory Profit Theories
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- Better, faster, or cheaper than the competition is
profitable.
11. Role of Business in Society
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- Business is useful in satisfying consumer wants.
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- Business contributes to social welfare
- Social Responsibility of Business
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- Provide employment opportunities.
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- Obey laws and regulations.
12. 13. Structure of this Text
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- Understand usefulness of economics in describing managerial
behavior.
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- Understand how economics can be used to improve managerial
decisions.
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- Appreciate vital role of business in society.