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) The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently. Managerial Decision Problems Economic theory Microeconomics Macroeconomics Decision Sciences Mathematical Economics Econometrics MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS 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 Equations: TR = 100Q - 10Q2 Tables: Graphs: Q 0 1 2 3 4 5 6 TR 250 240 Prepared by Robert F. Brooker, Ph.D. Slide 3 Total, Average, and Marginal Cost Q TC AC MC 0 20 - - AC = TC/Q MC = TC/Q Prepared by Robert F. Brooker, Ph.D. Slide 4 Total, Average, and Marginal Cost 0 6 0 1 2 0 1 8 0 2 4 0 0 1 2 3 4 Q T C ($) 0 6 0 1 2 0 0 1 2 3 4 Q AC , M C ($) AC M C Prepared by Robert F. Brooker, Ph.D. Slide 5 Profit Maximization Q TR TC Profit 0 0 20 -20 Prepared by Robert F. Brooker, Ph.D. Slide 6 Profit Maximization 0 60 120 180 240 300 0 1 2 3 4 5 Q ($) MC MR TC TR -60 -30 0 30 60 Profit Prepared by Robert F. Brooker, Ph.D. Slide 7 Concept of the Derivative The derivative of Y with respect to X is equal to the limit of the ratio Y/X as X approaches zero.