MANAGERIAL ECONOMICS 11th Edition

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MANAGERIAL ECONOMICS 11th Edition

• By
• Mark Hirschey

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Nature and Scope of Managerial Economics

• Chapter 1

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Chapter 1OVERVIEW

• How Is Managerial Economics Useful?
• Theory of the Firm
• Profit Measurement
• Why Do Profits Vary among Firms?
• Role of Business in Society
• Structure of this Text

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Chapter 1KEY CONCEPTS

• managerial economics
• theory of the firm
• expected value maximization
• value of the firm
• present value
• optimize
• satisfice
• business profit
• normal rate of return

• economic profit
• profit margin
• return on stockholders' equity
• frictional profit theory
• monopoly profit theory
• innovation profit theory
• compensatory profit theory

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How Is Managerial Economics Useful?

• Evaluating Choice Alternatives
• Identify ways to efficiently achieve goals.
• Specify pricing and production strategies.
• Provide production and marketing rules to help
  maximize net profits.
• Making the Best Decision
• Managerial economics can be used to efficiently
  meet management objectives.
• Managerial economics can be used to understand
  logic of company, consumer, and government
  decisions.

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Theory of the Firm

• Expected Value Maximization
• Owner-managers maximize short-run profits.
• Primary goal is long-term expected value
  maximization.
• Constraints and the Theory of the Firm
• Resource constraints.
• Social constraints
• Limitations of the Theory of the Firm
• Alternative theory adds perspective.
• Competition forces efficiency.
• Hostile takeovers threaten inefficient managers.

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Profit Measurement

• Business Versus Economic Profit
• Business (accounting) profit reflects explicit
  costs and revenues.
• Economic profit.
• Profit above a risk-adjusted normal return.
• Considers cash and noncash items.
• Variability of Business Profits
• Business profits vary widely.

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Why Do Profits Vary Among Firms?

• Disequilibrium Profit Theories
• Rapid growth in revenues.
• Rapid decline in costs.
• Compensatory Profit Theories
• Better, faster, or cheaper than the competition
  is profitable.

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Role of Business in Society

• Why Firms Exist
• Business is useful in satisfying consumer wants.
• Business contributes to social welfare
• Social Responsibility of Business
• Serve customers.
• Provide employment opportunities.
• Obey laws and regulations.

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Structure of this Text

• Objectives
• Understand usefulness of economics in describing
  managerial behavior.
• Understand how economics can be used to improve
  managerial decisions.
• Appreciate vital role of business in society.