Professional Documents
Culture Documents
2010
Managerial Economics
by
Hannele Wallenius
Grades will be based on
Managerial economics is
(mostly) applied
microeconomics (normative
microeconomics)
Managerial economics deals
with
“How decisions should be made
by managers to achieve the
firm’s goals - in particular, how
to maximize profit.”
Management
Decision Problems
Management Decision
Problems
Product Price and Output
Make or Buy
Production Technique
Stock Levels
Advertising Media and Intensity
Labor Hiring and Training
Investment and Financing
Management
Decision Problems
Economic Concepts
Framework for Decisions
Theory of Consumer Behaviour
Managerial Economics
Use of Economic Concepts and
Decision Science Methodology to
Solve Managerial Decision
Problems
Ch 2 THE GOALS OF A FIRM
Economic Goals:
Maximizing or Satisficing
1. Profit
2. Market share
3. Revenue growth
4. Return on investment
5. Technology
6. Customer satisfaction
7. Shareholder value
THE GOALS OF A FIRM continued
Non-economic Objectives:
1. “A good place for our employees
to work”
2. “Provide good products/services
to our customers”
3. “Act as a good citizen in our
society”
Optimal Decision:
P
As the time DS5 D
S4 DS3
period DS2
lengthens
f DS1
consumers e
find way to d
adjust to the c b
price change, P2
via P1 a
substitution or
shifting
consumption DL
Q3 Q2 Q1 Q
Elasticity of Derived Demand
R
($)
0 q0 Quantity
The Cross-Elasticity of
Demand
%∆QA
EX =
% ∆ PB
Cross-elasticity can be either
positive or negative. In
particular, cross-elasticity is
positive for substitutes and
negative for complements.
Categories of Income Elasticity
Q Superior
Normal
Inferior
Y
Income elasticity > 1: superior goods
Income elasticity > 0, and <1: normal
goods
Income elasticity < 0: inferior goods
Applications of Supply and
Demand
P
S
P2
P0
P1
D
0
Q1 Q0 Q2 Q
The Effect of a Price Floor on Supply
and Demand
W
S
W1
W0
D
0
Q1 Q0 Q2 Q
The Use of Price Supports
D
D
0 0 Q
Q1 Q2 Q Q1 Q3
a) b)
The Incidence of Taxes
effect of demand elasticity
effect of supply elasticity
Imposition of a Voluntary
Export Quota
Shift in Demand as
Consumer Tastes Change
Demand Elasticity and Tax Incidence
More elastic demand shifts the tax burden
more to the supplier.
S’
P P
S S
D’ D’
D
0 0
Q Q
The more
Supply elasticand
Elasticity theTax
supply, the more
Incidence
heavily consumers will bear the burden of
the tax.
P
S1’
S1
S’
P1
P2 S
P*
D
Q1 Q2 Q* Q
Imposition of a Voluntary Export
Quota
P
S’
P’’
S1
P’
P D’’
S0
P1
D’
P0 0
Q’ Q’’ Q
b) D & S of other cars
D
0
Q1 Q0 Q
a)D & S of Japanese cars
in USA before 1981
The Downward Shift in Beef
Demand
Decrease in the demand of beef will, over
time, shift resources out of beef
production.
S1
P
S0
P0
P1
D0
D2
D1
0
Q1 Q0 Q