Economic profits = total revenue -

THE 1. IDENTIFY GOALS AND

CONSTRAINTS
(explicit cost+implicit cost)
Accounting profits = total revenue-
FUNDAMENTALS THE ECONOMICS
OF EFFECTIVE
explicit cost
Explicit cost (wage, electric, rent,
OF MANAGEMENT 2. RECOGNIZE THE
material…) -> outlay of money
Implicit cost ( wage of other firm)
MANAGERIAL ROLE OF PROFITS Opportunity cost = explicit - cost +
implicit cost
ECONOMICS Economic profits + implicit cost =
accounting profits
7. USE MARGINAL
(INCREMENTAL) 3. FIVE FORCES Entry, Power of Input Suppliers,
ANALYSIS MODEL Power of Buyers, Industry
Rivalry, Substitutes &
To maximize net benefits, the
Complements
managerial control variable should
INTRODUCTION be increased up to the point where 4. UNDERSTAND Incentive: something that
MB = MC. INCENTIVES induces a person to act, i.e.
MB > MC means the last unit of the prospect of a reward or
the control variable increased
benefits more than it increased punishment.
MANAGERIAL costs.
MB < MC means the last unit of Consumer- Producer
MANAGER AND ECONOMICS the control variable increased costs 5. UNDERSTAND Rivalry,Consumer- Consumer
ECONOMICS more than it increased benefits. MARKETS Rivalry, Producer -Producer
Managerial Economics: The study Rivalry, Government the Mark
Manager: A person who of how to direct scarce resources 6. RECOGNIZE THE Present value of a single futur
in the way that most efficiently
directs resources to
achieves a managerial goal. TIME VALUE OF value
achieve a stated goal. Managerial economics provides MONEY Present value of a stream of
Economics: The science useful insights into every facet future values
of making decisions in of the business and nonbusiness Net Present Value
the presence of scare world in which we live — Present value of indefinitely
resources including house-hold decision lived assets
making. Present Value and profit
maximization