Professional Documents
Culture Documents
Chapter 1
Managers, Profits,
and Markets
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Managerial Economics, 9e
Managerial Economics, 9e Copyright © 2008 by the McGraw-Hill Companies, Inc. All rights reserved.
Managerial Economics
1-3
Managerial Economics
+
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1-5
Managerial Economics
1-7
Managerial Economics
• Value of a firm =
1 2 T T
t
...
(1 r ) (1 r ) 2
(1 r )
T
t 1 (1 r ) t
1-9
Managerial Economics
Separation of Ownership &
Control
• Principal-agent problem
• Conflict that arises when goals of
management (agent) do not match
goals of owner (principal)
• Moral Hazard
• When either party to an agreement
has incentive not to abide by all its
provisions & one party cannot cost
effectively monitor the agreement
1-10
Managerial Economics
1-11
Managerial Economics
What is a Market?
• A market is any arrangement
through which buyers & sellers
exchange goods & services
• Markets reduce transaction costs
• Costs of making a transaction other
than the price of the good or service
1-13
Managerial Economics
Market Structures
• Market characteristics that determine
the economic environment in which
a firm operates
• Number & size of firms in market
• Degree of product differentiation
• Likelihood of new firms entering market
1-14
Managerial Economics
Perfect Competition
1-15
Managerial Economics
Monopoly
• Single firm
• Produces product with no close
substitutes
• Protected by a barrier to entry
1-16
Managerial Economics
Monopolistic Competition
1-17
Managerial Economics
Oligopoly
1-18
Managerial Economics
Globalization of Markets
• Economic integration of markets
located in nations around the world
• Provides opportunity to sell more
goods & services to foreign buyers
• Presents threat of increased
competition from foreign producers
1-19