Managerial Economics in a Global Economy, 5th Edition By Dominick Salvatore All Chapters Complete (Presentation)

Managerial Economics in a Global Economy, 5th Edition By Dominick Salvatore All Chapters Complete (Presentation) Theory of the Firm • Combines and organizes resources for the purpose of producing goods and/or services for sale. • Internalizes transactions, reducing transactions costs. • Primary goal is to maximize the wealth or value of the firm. Value of the Firm The present value of all expected future profits Alternative Theories • Sales maximization – Adequate rate of profit • Management utility maximization – Principle-agent problem • Satisficing behavior Definitions of Profit • Business Profit: Total revenue minus the explicit or accounting costs of production. • Economic Profit: Total revenue minus the explicit and implicit costs of production. • Opportunity Cost: Implicit value of a resource in its best alternative use. Theories of Profit • Risk-Bearing Theories of Profit • Frictional Theory of Profit • Monopoly Theory of Profit • Innovation Theory of Profit • Managerial Efficiency Theory of Profit Function of Profit • Profit is a signal that guides the allocation of society’s resources. • High profits in an industry are a signal that buyers want more of what the industry produces. • Low (or negative) profits in an industry are a signal that buyers want less of what the industry produces. Business Ethics • Identifies types of behavior that businesses and their employees should not engage in. • Source of guidance that goes beyond enforceable laws. The Changing Environment of Managerial Economics • Globalization of Economic Activity – Goods and Services – Capital – Technology – Skilled Labor • Technological Change – Telecommunications Advances – The Internet and the World Wide Web Prepared by Robert F. Brooker, Ph.D. Slide 1 Managerial Economics in a Global Economy, 5th Edition by Dominick Salvatore Chapter 2 Optimization Techniques and New Management Tools Prepared by Robert F. Brooker, Ph.D. Slide 2 0 50 100 150 200 250 300 0 1 2 3 4 5 6 7 Q TR Expressing Economic Relationships