Managerial economics
Les 1 : introduction and reminders
Oversight:
1 : Industrial organization : concepts and defenitions
Algemeen:
= > focus ligt voornamelijk op markten met imperfecte competitie :
Nog specifieker leggen we focus op de oligopolie
Dit doordat bedrijven in deze marktsituatie verschillende strategieën gebruiken
Zijn deze strategieën die we behandelen in deze curus
Voorbeelden oligopolie:
2 : Reminders from microeconomics
o Markets:
,= plaats waar kopers en verkopers elkaar tegenkomen
Productionfunction
1) Productie functie : relatie inputs en outputs weergeeft
=> Bèta’s stellen de gewichten voor die PF op prod heeft
2) Cobb Douglas productie functie :
=> Y = output , L = arbeid , K = kapitaal, A = technologie
Fixed costs = remain constant regardless of the production level
Are only fixed for certain period
Disadvantage : during times of lower production = same high costs
Sunk costs = costs which, once committed cannot be removed
Sunk costs are always fixed costs , but not the other way around
Examples : advertising , investments in equipment, development
Economies of scale = it becomes less costly to produce, the more output you generate
The existence of economies of scale => favours concentrated markets : Monopolies
Economies of scope = narrowing your costs by increasing your product range
Cheaper to produce variety of product at the same time than all apart
Can be explained by the complementarity of the produced products
Profit maximization => WERKWIJZE in perfecte mededinging : perfect competition
Profit : )=
First order condition :
,Where :
To compute profit maximization : only marginal costs will matter
!! : however => other costs will be important in imperfectly setting because :
Know the demand : given that they want to maximize their profit
o Set appropriate price
o Thy to increase the demand – by innovating or advertising
Monopolistic situation : market demand = firm’s demand
Competitive setting : firm’s action has influence on other firm’s => the market forms it
selfs
Consumers:
o We assume they are rational = make the decision which gives them the highest pay-
off
o We assume they are price-takers = have to follow the market price because they
don’t have enough power as an individual to influence market prices on its own
o Individual decision can be aggregated in a demand function
Generally :
More complex representation of market demand:
We can make it even more complex by adding numerous other variables
Also variable of other companies :
Illustration : the Belgo Smartphone
, Demand function :
Insights :
o Demand decreases with the increase of its price
o Demand increases with the increase of competitors price
o Demand increases with the advertising effort
Price elasticity = the percentage change of demand given a change in price
we can distinguish different product based on the elasticity:
Types of price elasticity :
o Own price elasticity
o Cross elasticity : how does the demand of my product reacts to the increase in price
of my competitor
Perfect competition :
o Firm is price taker = follows the market price
o Price is determined by interaction of all firms and consumers
o Each firm’s production is small compared to the market output
Monopoly: (YouTube: economic profit for a monopoly: https://www.youtube.com/watch?
v=PEFEnss--mU)
o One supplier for the whole market
o Firm is price maker = sets the market price
Les 1 : introduction and reminders
Oversight:
1 : Industrial organization : concepts and defenitions
Algemeen:
= > focus ligt voornamelijk op markten met imperfecte competitie :
Nog specifieker leggen we focus op de oligopolie
Dit doordat bedrijven in deze marktsituatie verschillende strategieën gebruiken
Zijn deze strategieën die we behandelen in deze curus
Voorbeelden oligopolie:
2 : Reminders from microeconomics
o Markets:
,= plaats waar kopers en verkopers elkaar tegenkomen
Productionfunction
1) Productie functie : relatie inputs en outputs weergeeft
=> Bèta’s stellen de gewichten voor die PF op prod heeft
2) Cobb Douglas productie functie :
=> Y = output , L = arbeid , K = kapitaal, A = technologie
Fixed costs = remain constant regardless of the production level
Are only fixed for certain period
Disadvantage : during times of lower production = same high costs
Sunk costs = costs which, once committed cannot be removed
Sunk costs are always fixed costs , but not the other way around
Examples : advertising , investments in equipment, development
Economies of scale = it becomes less costly to produce, the more output you generate
The existence of economies of scale => favours concentrated markets : Monopolies
Economies of scope = narrowing your costs by increasing your product range
Cheaper to produce variety of product at the same time than all apart
Can be explained by the complementarity of the produced products
Profit maximization => WERKWIJZE in perfecte mededinging : perfect competition
Profit : )=
First order condition :
,Where :
To compute profit maximization : only marginal costs will matter
!! : however => other costs will be important in imperfectly setting because :
Know the demand : given that they want to maximize their profit
o Set appropriate price
o Thy to increase the demand – by innovating or advertising
Monopolistic situation : market demand = firm’s demand
Competitive setting : firm’s action has influence on other firm’s => the market forms it
selfs
Consumers:
o We assume they are rational = make the decision which gives them the highest pay-
off
o We assume they are price-takers = have to follow the market price because they
don’t have enough power as an individual to influence market prices on its own
o Individual decision can be aggregated in a demand function
Generally :
More complex representation of market demand:
We can make it even more complex by adding numerous other variables
Also variable of other companies :
Illustration : the Belgo Smartphone
, Demand function :
Insights :
o Demand decreases with the increase of its price
o Demand increases with the increase of competitors price
o Demand increases with the advertising effort
Price elasticity = the percentage change of demand given a change in price
we can distinguish different product based on the elasticity:
Types of price elasticity :
o Own price elasticity
o Cross elasticity : how does the demand of my product reacts to the increase in price
of my competitor
Perfect competition :
o Firm is price taker = follows the market price
o Price is determined by interaction of all firms and consumers
o Each firm’s production is small compared to the market output
Monopoly: (YouTube: economic profit for a monopoly: https://www.youtube.com/watch?
v=PEFEnss--mU)
o One supplier for the whole market
o Firm is price maker = sets the market price
