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Intro Man Econ
Intro Man Econ
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
MANAGERIAL ECONOMICS
Application of economic theory
and decision science tools to solve
managerial decision problems
OPTIMAL SOLUTION TO
MANAGERIAL DECISION PROBLEMS
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Economic Theory:
Relationship to Economic Theory:
The organization can solve its management
decision problems by application of
economic theory and the tools of decision
science.
Economic Theory refers to microeconomics
and macroeconomics. Economic theories seek
to predict and explain economic behaviour
based on a model.
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Microeconomics:
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Macroeconomics:
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Decision Sciences
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Cont..
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Alternative Theories
Sales maximization
Adequate rate of profit
Management utility maximization
Principle-agent problem
Satisficing behavior
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Alternative Theories
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Sales Maximization
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Definitions of Profit
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Theories of Profit
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Function of Profit
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Business Ethics
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Technological Change
–Telecommunications Advances
–The Internet and the World Wide Web
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
Example for the trade-off between profit and costs -Value of the firm
(a) Expenses is the explicit costs- the expenses are $ 10,000 for supplies, $
35,000 for salaries, $ 8,000 for rent, and $ 2,000 for utilities as well as
interest $ 5,000 – total amout is $ 60,000.
(b) The Implicit costs are the entrepreneeur’s foregone salary- $ 30,000.
(c) the business profit= total revenues - the explicit costs = $ 100,000 - $
60,000= $ 40,000
(d) the Economic profit= total revenues – (the explicit costs + Implicit costs) =
100,000 – ($ 60,000 + $ 30,000) = $ 10,000
(e) normal return on investment = The Implicit costs =$ 30,000.
(f) PV=10,000/1+0.10)....or roughly we can say that The person would earn
economic profit $ 10,000 per year, therefore, the person should open the
store..
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.
Ch 1: The nature and scope of Managerial Economics
The End
Thanks
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© 2004, Managerial Economics, Dominick Salvatore © 2010/11, Sami Fethi, EMU, All Right Reserved.