Economics of effective management

- an effective manager needs to distinguish

Factors: accounting from economic profit.
1. Identifying goals & constraints - If accounting profit is high that

- main goal of the firm is to maximize

profit and minimize its cost. Hence a
manager should always find ways to
procure inputs and to lowest the possible
cost without compromising quality.
 Technology - if one cannot keep up

means that the company is doing well

however the manager is said to be more
effective if he will also take into
account the opportunity cost of
production (implicit cost)

 What the owner should have earned

with technological advancements.
One didn’t possess technological
know-how.
 Gov’t/International Policies – creates
restrictions on the operations of a
business. (e.g environmental
policies, polices on taxation)
have they used their own resources
and invested them in their next
effective alternative. Here the
concept of opportunity cost/
forgone value is taken into
consideration


 Unfavorable changes in the price of

inputs
- increases in inputs can add more
stress in the availability of the capital
to sustain or maybe even expand
business operation.

2. Recognize the nature and importance of

profits