me11--ch-2. 1
TRANSCRIPT
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MANAGERIALMANAGERIAL
ECONOMICS 11ECONOMICS 11thth EditionEdition
ByBy
Mark HirscheyMark Hirschey
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Nature and Scope ofNature and Scope of
Managerial EconomicsManagerial EconomicsChapter 1Chapter 1
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Chapter 1Chapter 1
OVERVIEWOVERVIEW How Is Managerial Economics Useful?
Theory of the Firm
Profit Measurement Why Do Profits Vary among Firms?
Role of Business in Society
Structure of this Text
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Chapter 1Chapter 1
KEY CONCEPTSKEY CONCEPTS managerial economics
theory of the firm
expected value
maximization value of the firm
present value
optimize
satisfice
business profit
normal rate of return
economic profit
profit margin
return on stockholders'
equity frictional profit theory
monopoly profit theory
innovation profit theory
compensatory profittheory
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How Is Managerial Economics
Useful? Evaluating Choice Alternatives
Identify ways to efficiently achieve goals. Specify pricing and production strategies. Provide production and marketing rules to
help maximize net profits.
Making the Best Decision Managerial economics can be used to
efficiently meet management objectives. Managerial economics can be used to
understand logic of company, consumer, andgovernment decisions.
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Theory of the Firm Expected Value Maximization
Owner-managers maximize short-run profits. Primary goal is long-term expected value
maximization.
Constraints and the Theory of the Firm Resource constraints. Social constraints
Limitations of the Theory of the Firm Alternative theory adds perspective. Competition forces efficiency. Hostile takeovers threaten inefficient managers.
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Profit Measurement
Business Versus Economic Profit Business (accounting) profit reflects
explicit costs and revenues. Economic profit.
Profit above a risk-adjusted normal return.
Considers cash and noncash items.
Variability of Business Profits Business profits vary widely.
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Why Do Profits Vary
Among Firms?Disequilibrium Profit Theories
Rapid growth in revenues.
Rapid decline in costs.
Compensatory Profit Theories
Better, faster, or cheaper thanBetter, faster, or cheaper thanthe competition is profitable.the competition is profitable.
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Role of Business in
Society Why Firms Exist
Business is useful in satisfying consumer
wants. Business contributes to social welfare
Social Responsibility of Business
Serve customers. Provide employment opportunities.
Obey laws and regulations.
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Structure of this Text
ObjectivesUnderstand usefulness of
economics in describing managerialbehavior.Understand how economics can beused to improve managerial
decisions.Appreciate vital role of business insociety.