Lecture 1 Subject Information Introduction to M Managerial i l Economics E i

Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline

The role of managerial economics in managerial decision making ki Economic optimisation The value of firm Economic constraints D Demand d The basic economic variables Supply Costs Revenue Profit 2

Demand analysis and estimation

Market demand

Market supply

Market equilibrium

Price, cross-price, and income elasticity of demand

Normal versus inferior good Implication: optimal pricing policy Implication: optimal level of advertising

Production and Costs

Production functions Factors of production Total, marginal and average product, revenue and costs Return to factors versus return to scale Firm and plant size Economies and diseconomies of scale Optimal level of single input and optimal combination of multiple inputs Fixed and variable costs Explicit and implicit costs Short run versus long run in cost analysis

Competition, market structures and business decisions How does competition affect business decisions in different market structures?

Perfect competition; monopoly; oligopoly; monopolistic competition, ii Monopoly/monopsony M l / confrontation Competitive strategies. g Measurement of market structures

Market strategies in different market structures. Non-price competition. Multinational companies. Vertical and horizontal coordination.

Pricing strategies and practices

What prices should be set?

Mark-up p pricing p g

Competitive strategies.

Price discrimination.

Bundle pricing

Multiple and joint product pricing.

Transfer pricing g

Business and Government

The impact of regulation, deregulation and taxation policy on decision making, competitiveness and efficiency. Reasons for regulation. Regulatory response to incentive and structural failures. failures Taxes and subsidies Anti-Trust Policies. Problems with regulation

Capital budgeting

Capital budgeting process

Cash flow estimation Decision rules

Alternative projects

Cost of capital.

Optimal capital budgeting

Business and current economic situation Research topic

What would be the impact of high/low interest rates on costs or capital p budgeting? g g

How important, to managerial g and marketing decisions, are changes in foreign exchange rates, in interest rates, in incomes, in the balance of payments liberalisation of trade, payments, trade etc

Topic 1. Introduction: The nature of managerial economic decision making

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Competition, market structures and business decisions

Pricing strategies and practices

Business and Government. Production and Costs,

technological changes and industrial innovations

Capital budgeting Demand analysis and estimation

Managerial Economics

Business and current economic situation.

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Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline

The role of managerial economics in managerial decision making ki Economic optimisation The value of firm Economic constraints D Demand d The basic economic variables Supply Costs Revenue Profit 12

Introduction. The nature of managerial economic decision making Learning objectives

This topic is deals with the nature and the scope of Managerial Economics as a whole. The place of Managerial economics in the Economics discipline. How do managers make their decisions? The elements of the economic theory of firm that we need to understand nature of managerial economic decision making are: Economic optimisation; The value of firm; Economic constraints; The basic economic variables, including demand supply, costs, revenue and profit.

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Introduction. The nature of managerial economic decision making Reading

Mansfield, Chapter 1.

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Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline

Economics

Macroeconomics

Microeconomics Sector economics Labor economics Economics of IT and EC Managerial economics

Money, finance, banking

International Economics Regional g Economics Economic Development

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Introduction. The nature of managerial economic decision making

The role of managerial economics in managerial decision making Managerial decision problems Product price and output Make or buy Production technique I t Internet t strategy t t Advertising media and intensity Investment and financing Economic concepts Theory of consumer behaviour Theory of firm Theory of market structures and pricing Decision making tools Numerical analysis Statistical analysis Forecasting Game theory Optimisation

Managerial Economics Use of economics concepts and decision making tools to solve managerial decision problems

Optimal solutions

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Introduction. The nature of managerial economic decision making

The role of managerial economics in managerial decision making

The Process of decision-making

Identify objectives Define the problem Identify possible solutions Select the best p possible solution Implement the decision
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Introduction. The nature of managerial economic decision making Economic optimisation

Marginal value
The marginal value of a dependent variable i the is th h i this dependent variable associated with a 1-unit a particular independent variable

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Introduction. The nature of managerial economic decision making Economic optimisation

Choose alternative that produces a result the most consistent with managerial objective What is the primary managerial objective? It depends upon the ownership structure Profit maximisation? Sales/revenue maximisation? The value of firm maximisation? Profit per employee maximisation?
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Introduction. The nature of managerial economic decision making

Economic constraints

Li it d resourses Limited Labour Capital Finance Fi Raw materials Environment

Limited capacity of market Demand

Choice/Opportunity cost

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