Search for notes by fellow students, in your own course and all over the country.
Browse our notes for titles which look like what you need, you can preview any of the notes via a sample of the contents. After you're happy these are the notes you're after simply pop them into your shopping cart.
Document Preview
Extracts from the notes are below, to see the PDF you'll receive please use the links above
Chapter
Chapter 1: Introduction to Managerial Economics
1
Introduction to Managerial Economics
CHAPTER SUMMARY
Managerial economics is the science of directing scarce resources to manage cost
effectively
...
A market consists of buyers and sellers that communicate with each
other for voluntary exchange
...
A seller with market power will have freedom to choose suppliers, set prices, and
use advertising to influence demand
...
An organization must decide its vertical and horizontal boundaries
...
Managerial economics applies models that are necessarily less than
completely realistic
...
KEY CONCEPTS
managerial economics
microeconomics
macroeconomics
economic model
marginal value
average value
stock
flow
other things equal
vertical boundaries
horizontal boundaries
market
industry
market power
imperfect market
GENERAL CHAPTER OBJECTIVES
1
...
2
...
3
...
© 2001 I
...
L
...
W
...
Cheng
1
Chapter 1: Introduction to Managerial Economics
4
...
5
...
6
...
NOTES
1
...
Managerial economics is the science of directing scarce resources to
manage cost effectively
...
Application
...
(b) The “old economy” and “new economy” in essentially the same way except for
two distinctive aspects of the “new economy”: the importance of network
effects and scale and scope economies
...
network effects in demand – the benefit provided by a service depends
on the total number of other users, e
...
, when only one person had
email, she had no one to communicate with, but with 100 mm users
on line, the demand for Internet services mushroomed
...
scale and scope economies – scaleability is the degree to which scale
and scope of a business can be increased without a corresponding
increase in costs, e
...
, the information in Yahoo is eminently scaleable
(the same information can serve 100 as well as 100 mm users) and to
serve a larger number of users, Yahoo needs only increase the
capacity of its computers and links
...
Note: the term open technology (of the Internet) refers to the
relatively free admission of developers of content and applications
...
3
...
(a) Microeconomics – the study of individual economic behavior where resources
are costly, e
...
, how consumers respond to changes in prices and income, how
businesses decide on employment and sales, voters’ behavior and setting of
tax policy
...
(c) Macroeconomics – the study of aggregate economic variables directly (as
opposed to the aggregation of individual consumers and businesses), e
...
,
issues relating to interest and exchange rates, inflation, unemployment, import
and export policies
...
Methodology
...
Systematic economic behavior means individuals share common
motivations and behave systematically in making economic choices, i
...
(b) Economic model – a concise description of behavior and outcomes:
i
...
g
...
constructed by inductive reasoning;
iii
...
5
...
(a) Margin vis a vis average variables in managerial economics analyses
...
marginal value of a variable – the change in the variable associated
with a unit increase in a driver, e
...
, amount earned by working one
more hour;
ii
...
g
...
of
hours worked;
iii
...
g
...
of hours worked;
iv
...
if the marginal value of a variable is greater than its average value, the
average value increases, and vice versa
...
i
...
g
...
Flow – the change in stock over some period of time, measured in
units per time period e
...
, items on an income statement (receipts and
expenses), the world’s current production of oil per day
...
Having analysed the
effects of each factor, they can be put together for the complete picture
...
Organizational boundaries
...
(b) Vertical boundaries – delineate activities closer to or further from the end user
...
3
Chapter 1: Introduction to Managerial Economics
(d) Organizations which are members of the same industry may choose different
vertical and horizontal boundaries
...
Competitive markets
...
i
...
It is not limited by physical structure
...
in markets for consumer products, the buyers are households and
sellers are businesses
...
in markets for industrial products, both buyers and sellers are
businesses
...
in markets for human resources, buyers are businesses and sellers are
households
...
Note: an industry is made up of businesses engaged in the production
or delivery of the same or similar items
...
i
...
g
...
ii
...
(c) Non-competitive markets – a market in which market power exists
...
Market power
...
A seller with market power will have the freedom to choose suppliers, set
prices and influence demand
...
(c) In addition to managing costs, sellers with market power need to manage their
demand through price, advertising, and policy toward competitors
...
Imperfect Market
...
(b) The challenge is to resolve the imperfection and be cost-effective
...
10
...
(a) Local markets – owing to relatively high costs of communication and trade,
some markets are local, e
...
, housing, groceries
...
4
Chapter 1: Introduction to Managerial Economics
(b) Global markets - owing to relatively low costs of communication and trade,
some markets are global, e
...
, mining, shipping, financial services
...
(c) Whether a market is local or global, the same managerial economic principles
apply
...
Foreign sources may provide
cheaper skilled labor, specialized resources, or superior quality, resulting in
lower production costs and/or improved quality
...
The managerial economics of the “new economy” is much the same as that of the
“old economy” with two aspects being more important – network effects in demand and
scale and scope economies
...
Vertical boundaries delineate activities closer to or further from the end user
...
ANSWERS TO REVIEW QUESTIONS
1
...
Delivery through UPS is
somewhat scaleable: UPS already incurs the fixed cost of an international collection
and distribution network; it may be willing to give Amazon bulk discounts for larger
volumes of business
...
Number of cars in service January 2002 + production + imports – exports –
scrappage during 2002 = Number of cars in service January 2003
...
3
...
4
...
5
...
(b) Price
of marginal minute = 120 yen
...
(a) Flow; (b) Stock; (c) Stock
...
(a) The electricity market includes buyers and sellers
...
The
electricity
8
...
(b) False
...
[omitted]
...
If there are scale economies, the organization could product at a lower cost on a
larger scale, which means wider horizontal boundaries; and vice versa
...
Yes
...
Intel has relatively more market power
...
(b)
...
Both (a) and (b)
...
Competitive markets have large numbers of buyers and sellers, none of which can
influence market conditions
...
A market is imperfect if one party directly conveys
benefits or costs to others, or if one party has better information than another
...
It charges $60 per
day for an unlimited mileage plan, and $40 per day for a time-and-mileage plan with
100 free miles plus 20 cents a mile for mileage in excess of the free allowance
...
For a customer who plans to drive 50 miles, which is the cheaper plan
...
)
b
...
What
are the average and marginal costs per mile of rental?
c
...
The breakeven between the two plans is at 200 miles per day
...
Average cost = $40/50 =
80 cents per mile
...
Total cost ($)
time-and-mileage plan
unlimited mileage plan
$60
$40
0
100
200
Quantity (miles per day)
(b) For the 150 mile customer, the time-and-mileage plan is still cheaper
...
2 x 50)/150 = 33 cents per mile; marginal cost = 20 cents per
mile
...
2 x 50)/150
= 36 cents per mile, while marginal cost = 20 cents per mile
...
7