Chapter 1 MGRL Econ

ECON 110
MANAGERIAL ECONOMICS
1 Sem, AY 2024-2025
st
Dorilyn P. Cayaban-Tiongson
Course Facilitator
ECON 110
INTRODUCTION AND GOALS OF

THE FIRM
ECONOMICS
• is the study of how individuals and societies
choose to use the scarce resources that nature
and previous generations have provided
• is a behavioral, or social, science. In large
measure, it is the study of how people make
choices.
ECONOMICS
•Economics is the study of how mankind acts,
moves, thinks, and lives in the course of daily
life.
•As sociology, economics analyzes how people
behave in relation to a limited supply of
resources with multiple uses (McGuigan et al., 2013).
ECONOMICS
• Economics is decision-making logic. It imparts
the art of making logical decisions and
reducing behavior to address the shortage
issue (Wieland, 2022)
MICROECONOMICS
•branch of economics that examines the
functioning of individual industries and the
behavior of individual decision-making units-
that is, firms and households.
MACROECONOMICS
•is the branch of economics that examines the
economic behavior of aggregates-income,
employment, output, and so on-on a national
scale.
•Business Economics
•as a fundamental study helpful for specific
functional areas of commercial administration
(Schlaifer, 1959).
•is concerned with the skill of economizing, i.e..
choosing the optimal course of action from a
variety of options to provide the most return
with the least amount of resources and labor
(Jensen & Zimmerman, 1985).
• managerial economics has evolved through
forging connections between economic theory,
decision sciences (tools and methods of
analysis), and business management in theory
and practice (Malloy et al., 2017).
Traditional Business
Economics and Managerial Management in
Tools and Economics Theory and
Techniques of Practice: Decisions,
Decision Problems
Sciences
• focuses on applying economic theories and
methodology to the firm's internal decision-
making processes
• set guidelines and standards that will make it
easier to achieve the economic objectives of
business management that have been selected,
such as cost minimization, revenue and profit
maximization
SIGNIFICANCE OF MANAGERIAL
ECONOMICS
• It entails the application of economic theory,
particularly microeconomic analysis, to real-
world business issue- solving
• It is both a science and an art that helps
improve managerial discipline
• It is focused on how businesses behave while
allocating resources in the best way possible.
SIGNIFICANCE OF MANAGERIAL
ECONOMICS
 Business Planning
 Cost Control
 Price Determination
 Business Prediction
 Profit Planning and Control
 Inventory Management
 Manages Capital
SCOPE OF MANAGERIAL ECONOMICS
1. Microeconomics Applied to Operational Issues
a. Theory of Demand
b. Theory of Production and Production Decisions
c. Pricing Theory and Analysis of Market Structure
d. Profit Analysis and Management
e. Theory of Capital and Investment Decisions
SCOPE OF MANAGERIAL ECONOMICS
2. Macroeconomics Applied to Business
Environment
a. Economic Environment
b. Social Environment
c. Political Environment
AREAS OF MANAGERIAL ECONOMICS
 Demand Elasticity
 Demand Forecasting
 Break-Even Analysis
 Profit Planning and Management
 Cost Analysis
 Demand Function and Estimation
 Pricing Policies and Practices in Real Business
 Production Function and Laws
 Project Planning and Management
 Project Planning
 Capital Budgeting and Management
 Government and Business.
 Various market structures, such as
monopolies, oligopolies, and monopolistic
competition, have different methods for
pricing and output.
 Linear Programming
 Game Theory
PRINCIPLES OF MANAGERIAL
ECONOMICS
1. Principle of how people make decisions
 People Face Tradeoffs
 Opportunity Cost
 Rational People Think at the Margin
 People Respond to Incentives
ECONOMICS
2. Principles of how people interact
 Trade Can Make Everyone Better off
 Markets Are Usually A Good Way to
Organize Economic Activity
 Governments Can Sometimes Improve
Market Outcomes
ECONOMICS
3. Principles of how economy works as a whole
 A Country's Standard of Living Depends on Its
Ability to Produce Goods and Services
 Prices Rise When the Government Prints Too
Much Money
 Society Faces a Short-Run Tradeoff Between
Inflation and Unemployment
OBJECTIVES OF MANAGERIAL
ECONOMICS
1. Production Decisions
2. Inventory Decisions
3. Cost Decisions
4. Marketing Decisions
5. Investment Decisions
6. Personnel Decisions
ECONOMICS
•Managerial economics may be useful in the following
respects (Bois et al., 2004):
1. It improves the quality and preciseness of
decisions;
2. It makes problem-solving easy in business;
3. It helps in arriving at quick and appropriate
decisions.
ECONOMICS
•Business economics has practical applications
in several management and business domains,
including production, inventory, marketing,
financial, human resource, and knowledge
management (Armstrong & Collopy, 1996).
 Knowledge of Management
 Human Resource Management
 Financial Management
 Marketing Management
 Strategic Management
 Production and Inventory Management
SCIENTIFIC METHOD OF ECONOMIC ANALYSIS
 identifying the issue;

 creating the hypothesis;
 creating an abstraction for the model;
 gathering data;
 testing the hypothesis;
SCIENTIFIC METHOD OF ECONOMIC ANALYSIS
 deducing based on data analysis;

 analyzing the test results;
 decision-making conclusions
 outlining the issue.
(Thiel, 2014)
CONSTRAINTS IN BUSINESS OPERATIONS
 Government regulations.
 Productivity and labor quality norms. Different
employees approach their tasks differently, and their
competency levels can vary. The functions that each
labor unit performs are unique.
 Availability of required inputs in required proportions.
 Managerial talents.
 State of technology.
 Production capacity of the organization in the short
and long run.
 Provision of company's hardware and software.
 Taxation.
 Business capital funds.
 Warehousing and logistic facilities.
 Corporate culture of the company.

 Diversity of human resources and its mode of
utilization.
 Quantum of information and knowledge
acquisition, management, and utilization (Reynolds et
al., 2006).
SHAREHOLDER WEALTH-MAXIMIZATION
 A measure of the value of the firm

 Is equal to the firm’s ordinary stock, which is
in turn, equal to the present value of all future
cash returns expected to be generated by the
firm for the benefit of its owners

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ECON 110

INTRODUCTION AND GOALS OF

 identifying the issue;

 deducing based on data analysis;

 Corporate culture of the company.

 A measure of the value of the firm

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