RESOURCE

UTILIZATION
ABENDAN | FUENTES | OABE | GONZALES | CABALLERO
OBJECTIVES
Review the basics of Economics
Define Managerial Economics
Determine the nature of Managerial
Economics
Identify the relationship of Managerial
Economics to Econometrics
Describe the Theory of the Firm
Enlighten on the importance of Profit
THE BASICS OF ECONOMICS
Economics is the science that deals with the management
of scarce resources in demand.

Economics is simply scarcity and choice.- Slavin (2005)

Efficiency and Effectiveness is necessary in the study of

managerial economics.
EFFICIENCY

Refers to productivity and

proper allocation of Economic
Resources
EFFECTIVENESS

Means attainment of goals

and objectives
OPPORTUNITY
COST
Refers to the forgone
value of the next best
alternative. Value of
what is given up when
one makes a choice.
PRODUCTION
AN ECONOMIC ACTIVITY THAT COMBINES ITS
FACTORS FROM LAND, LABOR, AND CAPITAL.
ENTREPRENEURSHIP
PERTAINS TO SKILLS, TALENT, AND RISK-
TAKING BEHAVIOR NEEDED IN BUILDING,
OPERATING AND EXPANDING A BUSINESS.
ECONOMICS 2 MAJOR
BRANCHES OF STUDY
MICROECONOMICS
Studies the decisions of
individuals and firms to
allocate resources of
production, exchange, and
consumption.
MACROECONOMICS
involved in
understanding the
behavior of society as a
whole
Ceteris Paribus means
“all other things held
constant or all else
equal”
 1. What to Produce?

2. How to Produce?

3. How much to Produce?

4 BASIC ECONOMIC 4. For whom to Produce?

QUESTIONS
 Defining Managerial Economics

Managerial economics is the utilization of

managerial skills in the business by applying
economic theories and concepts to maintain
efficiency in costing and production and its
effectiveness on every decision making by the
firms to fully maximize their profits.
 Defining Managerial Economics

Utilization of managerial skills

Economic theories and concepts
Efficiency in costing and production
Effectiveness in decision making
Through these processes, it is expected that
maximization of profit will be achieved by the
business/firm.
managerial economics is described as, "As the
pull out component from microeconomic
theory, concepts and techniques that helps
every manager select strategic direction, to
allocate efficiently the resources available
and respond effectively to tactical issues."

McGuigan, Moyer &

Harris (2008)
 "The study of how to direct scarce
resources in the way that most efficiently
achieves a managerial goal."

Baye (2010)
 defined managerial economics as a
discipline that helps decision makers
deal with the nature of the firm, how and
why it is organized the way it is, in order
to make a better, more efficient, and
more highly rewarded executive

McCormick (1993)
described managerial economics as "the
application of economic theory and the
tools of analysis of decision science to
examine how an organization can
achieve its aims or objectives most
efficiently."
Salvatore (2004)
 managerial economics as the "branch of
economics which deals with the application
of the theories, tools, and findings of
economic analysis to managerial decision
making in all types of organizations, including
government agencies, educational centers,
not-for-profit foundations, and business
enterprises.

Villegas (1999)
 Relationship of Mathematical Economics and
Econometrics to Managerial Economics

Managerial Economics

Mathematical Economics Econometrics

used to formalize (express used in managerial
in equation form) the economics as a statistical
economic models tool (particularly
postulated by economic regression analysis) to
theory to firmly identify estimate real-world data
proper solution to a and analyze the models
managerial decision postulated by economic
problem theory
Figure 1.1:
The
Nature of
Managerial
Economics
 MANAGERIAL
ECONOMICS AND OTHER
BUSINESS DISCIPLINES
 MARKETING

PRINCIPLES OF FINANCE

MANAGERIAL MANAGEMENT SCIENCE

STRATEGIC MANAGEMENT
ECONOMICS
MANAGERIAL ACCOUNTING
The Theory
of firm
Firm
a collection of resources that is transformed
into products demanded by consumers
Firm
a collection of resources that is transformed
into products demanded by consumers

“Producing unit”
Main objective
is to MAXIMIZE WEALTH or VALUE OF
THE FIRM
Main objective
is to MAXIMIZE WEALTH or VALUE OF
THE FIRM

“MAXIMIZE PROFIT”
 Goals of the Firm

The Firm

Goals

To Earn Profit
To increase its Own Value as an Economic
Activity
To improve the Quality of Life in the Community
Earning Profit
Profit
is defined as the difference that arises when a
firm’s total revenue is greater than its total cost.
 With a large profits, entreprenurs invest more
funds to expand their businesses and produces
new commodities to satisfy consumers needs,
wants, and demands.
Increasing its own value as an
economic activity
 Growth of the firm is a sign of expansion and part of its
success. It can be measured in terms of increase in asset
that appreciate in value, greater production capacity
accompanied by increase in sales volume, and increase in
owner’s equity.
Stability of the company shows the strength and survival
of the firm through the test of time in the market. It also
refers to the firm’s ability to weather the ups and downs
in the economy or the ability to continue operations
despite anticipated risks in business.
Improving the quality of life in
the community
The firm has a chance of improving the life of certain
person by providing job oppotunities at the same time
earning proper salary/wages.

On the other hand, firms not only support other entities

that are directly or indirectly affected by its business
transactions. Through so called Corporate Social
Responsibility or CSR program, this is where the company
gets involved in civic activities such as providing medical
and health services, recreational facilities, livelihood
training facilities, and financial assistace for community
projects.
THE
DECISION
MAKING
MODELS
“What­ever a manager does he does through making
decisions.”

According to P. F. Drucker
 The decision making of
every manager is
considered as the heart
and soul of any
enterprise. Its success
depends on how the
manager makes sound
decision when it comes to
utilizing available
resources (capital,
technology, labor, etc.) in
the business.
Decision Establish and/or
identify objectives

Making
Process Define the
problem

Identify possible
alternative solutions

Consider societal Consider

Evaluate alternatives organizational and
constraints and select the best input constraints

Implement and monitor

the solutions
THE
ROLE
OF THE
PROFITS
Economic Profit
is defined as the difference between total
revenue and total economic cost.

Economic Cost
is defined as the cost of the alternative
opportunity that is foregone.

Opportunity Cost
is the cost of explicit and implicit resources
that is considered as foregone given the
choices.
Theories
Of
Profits
 Risk-Bearing Theory of Profit

is based on the assumption that the

investment risk experienced by the
owners of the organization should
be compensated by economic
profits above a competitive rate of
return.
 Temporary Disequilibrium
Theory of Profit

is when the firm earned a long-run

equilibrium normal rate of profit
that should be adjusted to risk.
 Monopoly Theory of Profit

one firm which dominates the

industry has the possibility to earn
above-normal rates of returns for a
long period of time because of zero
competition.
 Innovation Theory of Profit
assumes that due to innovation success, an
organization is rewarded by above-normal
profit. According to Joseph Schumpeter, an
Austrian political economist, the innovative
theory has been a successful theory of
entreprenuership wherein creativity or
successful innovation fuels economic
profits.
Managerial Efficiency Theory of Profit
assumes that exceptional managerial skills
of well-managed enterprise meet the
above-normal profit also called
compensatory theory of profits, the higher
the efficiency level of the firm, the higher
the compensatory factor will be that goes
above-normal returns. Firms that are more
efficient would earn greater economic
profits. Profit is the reward representation
of greater efficiency.
PROFIT MAXIMIZATION
WHY IS PROFIT NECESSARY?
Any enterprise needs profit. This is a sign of
success-success in decision making, efficiency
in utilizing resources, and effective execution
or implementation of all the activities in the
organization.
THE SHAREHOLDER
WEALTH-MAXIMIZATION
MODEL OF THE FIRM

Make decisions that will increase the Financial

value of the firm. The managers of the businesses
try to maximize the shareholder and firm's
wealth.
GOALS IN PUBLIC SECTOR AND NON-PROFITABLE ENTERPRISES

Public sector Non-profitable enterprises

agencies focus on public- are organizations that do not
good services. receive profit. (ex. churches,
-not supported by profits charities, hospitals, and more.)
NON-PROFITABLE OBJECTIVES

In Non-profit organizations aim to maximize output

quality, administrators' utility, cash flows, and
contributors' satisfaction.
UNDERSTANDING
THE MARKETS
In analyzing the concepts and theories of
microeconomics, it centers on the main idea that in
transactions of the market, if there is a consumer of a
commodity, there is also producer of goods and
services.
CONSUMER - PRODUCER RIVALRY

Consumers and producers in markets often engage in

price and stock competition, with consumers seeking
lower prices for satisfaction and producers seeking
higher prices for profit.
 CONSUMER - CONSUMER RIVALRY
The power of the consumer in dominating the market is
proven and tested in years, but when it comes to the basic
economic problem which is scarcity, the consumers battle
for survival.
 PRODUCER - PRODUCER RIVALRY

The marketplace is a fierce battleground for

producers, with intense competition ranging from
product quality to customer service, affecting
everything from design to pricing.
 GOVERNMENT AND THE MARKET
The government has a major role in shaping the
economy's market structure by guaranteeing
monopoly production in terms of the supply of energy
and by classifying businesses into oligopolies,
duopolies, perfect, and monopolistic competition.
 THANK YOU!

ABENDAN | FUENTES | OABE | GONZALES | CABALLERO