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    Notes Eco 555 - Chapter 1

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    Jai ToneExcel
    Managerial economics analyzes how firms make optimal decisions to achieve their goals most efficiently. It applies economic theory and decision science tools. A firm's primary goal is typically maximizing profits but may also include other economic goals like sales and market share or non-economic goals. Firms exist because it is costly for individuals to produce goods themselves. They face constraints like finances, technology, and availability of resources. Profits function as rewards and signals to guide production levels and resource allocation. A firm calculates profits as total revenue minus total costs, which include explicit and implicit costs.

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    Notes Eco 555 - Chapter 1

    Uploaded by

    Jai ToneExcel
    78 views6 pages
    Managerial economics analyzes how firms make optimal decisions to achieve their goals most efficiently. It applies economic theory and decision science tools. A firm's primary goal is typically maximizing profits but may also include other economic goals like sales and market share or non-economic goals. Firms exist because it is costly for individuals to produce goods themselves. They face constraints like finances, technology, and availability of resources. Profits function as rewards and signals to guide production levels and resource allocation. A firm calculates profits as total revenue minus total costs, which include explicit and implicit costs.

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    Notes eco 555 - Chapter 1

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    Managerial economics analyzes how firms make optimal decisions to achieve their goals most efficiently. It applies economic theory and decision science tools. A firm's primary goal is typically maximizing profits but may also include other economic goals like sales and market share or non-economic goals. Firms exist because it is costly for individuals to produce goods themselves. They face constraints like finances, technology, and availability of resources. Profits function as rewards and signals to guide production levels and resource allocation. A firm calculates profits as total revenue minus total costs, which include explicit and implicit costs.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    78 views6 pages

    Notes Eco 555 - Chapter 1

    Uploaded by

    Jai ToneExcel
    Managerial economics analyzes how firms make optimal decisions to achieve their goals most efficiently. It applies economic theory and decision science tools. A firm's primary goal is typically maximizing profits but may also include other economic goals like sales and market share or non-economic goals. Firms exist because it is costly for individuals to produce goods themselves. They face constraints like finances, technology, and availability of resources. Profits function as rewards and signals to guide production levels and resource allocation. A firm calculates profits as total revenue minus total costs, which include explicit and implicit costs.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 6

    CHAPTER 1 : INTRODUCTION TO

    MANAGERIAL ECONOMICS
    • Definition of Managerial Economics
    • Circular Flow of Economic Activity
    • Nature of Firms
    Definition of Firms
    Why Firm Exist?
    Goals of Firms
    Other Economic Goals
    Non-Economic Goals
    Constraint Faced By Firm
    What is Profit?
    Functions of Profits
    Calculation of Profit
    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS
    I. Definition of Managerial Economics
     It is an application of economic theory and the tools of analysis of decision science to
    examine how a firm can achieve its aims or objectives most efficiently

    Produce or buy?
    Technique of Production
    Problems faced by What to produce?
    management Media or promotion

    Economic Decision
    Managerial sciences
    Theory
    Economics
    Microeconomics Mathematical Economics
    Macroeconomics Statistics

    Optimal
    solution
    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS
    II. Circular Flow of Economic Activity

    Goods and services Goods and services


    Product
    market
    Payment for Payment for
    goods and services goods and services

    Household Firms

    Factor payment
    income
    Factor
    market
    Economic resources Land, labor, capital, entrepreneur
    Outer loop – physical flows inner loop – money flows
    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS
    III. Nature of Firms

    1. Definition of Firms
    Organization that combines and organizes resources for the purpose of
    producing goods and/or services for sale

    2. Why Firm Exist?


    Very costly for individual to enter into each step of production and
    distribution process

    3. Primary Goal of Firms


    Maximizing wealth/value of the firm
    (PV of the expected future profits of the firm)

    4. Other Economic Goals


    Maximizing sales
    Maximizing market share
    Produced technologically advanced product

    5. Non-Economic Goals
    Produce environmental friendly products
    Provide a good place for employees
    Provide good products and/or services to customer

    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS
    6. Constraint Faced By Firm
    Financial
    Moral
    Technological
    Environmental
    Availability of resources
    legal

    7. What is Profit?
    Reward for bearing risk
    Reward due to monopoly status
    Reward for innovation
    Reward due to imperfect market mechanism

    8. Functions of Profits
    Signaling changes in the rate of production
    Signaling for reallocation of resources due to changing in demand and taste

    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS
    9. Calculation of Profit
    Profit = TR - TC
    Accounting Profit = TR - Explicit Costs
    Economic Profit = TR - Exp Costs - Imp Costs

    Notes:

    • EXPLICIT COSTS
    The actual expenditures of the firm required to hire or
    purchase inputs

    • IMPLICIT COSTS
    The value of the inputs owned and used by the firm

    CHAPTER 1 : INTRODUCTION TO
    MANAGERIAL ECONOMICS

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