Managerial Economics

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Managerial Economics

• Warren E. Buffett, celebrated chairman of Omaha,
  Nebraska-based Berkshire Hathaway, Inc., started
  an investment partnership with 100 in 1956 and
  went on to accumulate a personal net worth in
  excess of 50 billion.

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Managerial Economics

• Buffett is famous for his razor-sharp focus on
  the competitive advantages of Berkshires wide
  assortment of operating companies.
• Berkshire subsidiaries commonly earn more than 30
  percent per year on invested capital, compared
  with the 10 percent to 12 percent rate of return
  earned by other well-managed companies.

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Managerial Economics

• As both a skilled manager and an insightful
  investor, Buffett likes wonderful businesses with
  high rates of return on investment, lofty profit
  margins, and consistent earnings growth.
• Complicated businesses that face fierce
  competition and require large capital investment
  are shunned

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Managerial Economics

• Buffetts success is powerful testimony to the
  practical usefulness of managerial economics.
• Managerial answers fundamental questions. When is
  the market for a product so attractive that entry
  or expansion becomes appealing?
• When is exit preferable to continued operations?

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Managerial Economics

• Why do some professions pay well, while others
  offer only meager pay?
• Successful managers make good decisions, and one
  of their most useful tools is the methodology of
  managerial economics

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How is Managerial Economics Useful?

• Economic theory and methodology lay down rules
  for improving business and public policy
  decisions.
• Managerial economics helps managers recognize how
  economic forces affect organizations and
  describes the economic consequences of managerial
  behavior.

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How is Managerial Economics Useful?

• Managerial Economics also links economic concepts
  and quantitative methods to develop vital tools
  for managerial decision making.
• Managerial Economics identifies ways to achieve
  goals efficiently.
• Managerial economics can be used to specify
  pricing and production strategies

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How is Managerial Economics Useful?

• Managerial economics provides production and
  marketing rules to help maximize profits
• To establish appropriate decision rules however,
  managers must understand the economic environment
  in which they operate.
• Once management has set relevant goals,
  managerial economics can be used to efficiently
  attain those objectives.

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How is Managerial Economics Useful?

• Managerial economics can be used to deduce the
  underlying logic of company, consumer, and
  government decisions.
• Sources http//www.berkshirehathaway.com
• Managerial Economics Mark Hirschey 12e

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How is this book different?

• Besides covering the standard managerial
  economics problems of pricing, production,
  demand, supply and game theory, this book pays
  special attention to organizational issues such
  as
• How the business environment (technology,
  regulation, and competition in input and output
  markets) drives the firms choice of strategy

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How is this book different?

• How strategy and the business environment affect
  the firms choice of organizational design what
  we call here is organizational architecture.
• How the firms organizational architecture is
  like its DNA the firms ultimate success or
  failure can be traced back to its organizational
  architecture, which will affect how people in the
  organization will behave in terms of of creating
  or destroying its value

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How is this book different?

• How corporate policies such as strategy,
  financing, accounting, marketing, information
  systems, operations, compensation, and human
  resources are interrelated and thus why it is
  critically important that they be coordinated.

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How is this book different?

• Finally, how the three key features of
  organizational architecture
• 1. the assignment of decision making authority
  who gets to make what decisions?
• 2. the reward system How are people rewarded for
  meeting performance goals?
• 3. the evaluation system What are the key
  performance measures used to evaluate managers
  and employees?
• can be structured to allow managers to achieve
  their desired results.

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How is this book different?

• This book provides a multidisciplinary,
  cross-functional approach to managerial and
  organizational economics.
• This book draws examples from a number of
  functional areas to demonstrate the power of this
  underlying economic framework to analyze a
  variety of problems managers face regularly