Intro economics

7/28/2019 Intro economics

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Headlines

Airline Sued for Predatory pricing.

Telecommunication Firms Plan to Cut

Rates Unlikely to boost Calls Much

Cola Price Wars Continue


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Crores of Rupees lost each year because many

existing managers fail to use basic Managerial

Economics

Manager:A person who directs resources to

achieve a stated goal.

Managerial Economics- Economics:The science of making

decisions in the presence of scarce

resources.

Managerial Economics:The study of how to

direct scarce resources in the way that

most efficiently achieves a managerial goal.


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What about the nature of M.E?

Management decision problems

Economic theory Decision

Microeconomics Sciences

Macroeconomics Mathematical

EconomicsEconometrics

Managerial Economics:

Application of economic theory and decision

science tools to solve managerial decision

problems


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Case Studies

Decision Making in Business and Military

Strategy

The Management Revolution

(Sources:Fortune,Forbes etc)


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The Theory of the Firm

Firm behavior-The centerpiece and central

theme of ME

Firm-Is an organization that combines andorganizes resources for the purpose of

producing goods and/or services for sale.

Reasons for Firms existence-transactioncosts

Function of Firms-Circular flow of economic

activity


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The Objective of the Firm-Maximise value-long-run profits.

Value of the Firm-Present value of all expected

future profits of the firm- Constraints on the operation of the firm-

Constrained optimization

Limitations of the Theory-Too narrow andunrealistic-alternatives-maximization of sales(Baumol), maximization of management utility(Williamson & others ),satisficing behavior

(Cyert and March)

The Theory of the Firm(contd)


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Profit- Meaning

Accounting Profit = Total Revenue (TR)

Explicit costs (W + R + I + M)

Economic Profits or Pure Profits = TR Explicit

costs - Implicit costs (Opportunity costs)

(Referred to as Economic Value added (EVA))

Gross Profits = TR TE (Total Expenditure)

Net Profits = Gross profits Rewards to factors

of production - Depreciation


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GROSS/NET PROFIT ACCOUNTING/ECONOMIC

PROFIT

NET SALES 5,00,000 TOTAL REVENUES 5,00,000

Less: Cost of goods sold 2,50,000

Gross Profit 2,50,000

Less: Expense

Employee Compensation:1,50,000

Advertising : 30,000Utilities & Maintenance: 20,000

Miscellaneous: 10,000

Total 2,10,000

40,000Net Profit Before Taxes

(Gross Profit-Expenses)

Less : Explicit Costs

Cost of goods sold : 2,50,000Employee compensation: 1,50,000

Advertising: 30,000

Utilities & Maintenance: 20,000

Miscellaneous: 10,000

Total 4,60,000

Accounting profits before Taxes 40,000

Less: Implicit Costs

Salary (manager): 30,000Rent: 18,000

Total 48,000

Economic Profit(or loss)Before taxes

8,000


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The Nature and Function of

Profits

Theories of Profit-

Riskbearing;Frictional;Monopoly;Innovation;

Managerial Efficiency.


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Vital Issues

Business ethics(Boeing Case-Study)

The International framework of

Managerial Economics-Globalization of

economic activity

ME and the internet


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Case Studies

The Virtual Corporation

The rise of the Global Corporation

The Global Business leader


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New Management Tools

Benchmarking(Also Case Study)

Total Quality Management(Also Case

Study) Reengineering(Also Case Study)

The Learning Organization

Broad banding


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New Management Tools (contd)

Direct business model

Networking

Pricing power

Small-world model

Virtual Integration

Virtual management

Intro economics

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