01 What ManEc is about Flashcards
Definition ManEc
- use of economic analysis to make business decisions involving the best use (allocation) of an organisations scarce resources
The job of the chief executive officer is to….
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However it is critical that he….
- focus on maximizing profit
- be concerned with how a firm is positioned in a market relative to its rivals
- focuses on maximizing profit rather than beating a rival
The CEO orders the production managers to…
The CEO asks the market research manager to…
… minimize the cost of producing the praticular good or service
… determine how many units can be sold at any given price and so forth
Decisions made by managers and constraints
- Production manager
- HR manager
- marketing manager
A firms top manager must coordinate all this. What could be his constraints? (4)
- achieve a production target at the lowest possible cost | use the existing factors
- design compensation systems to encourage employees to work hard | limited resources and employees already in the firm
- allocate an advertising budget to promote the product most effectively | limited marketing budget
- financial constraints
- time constraints (dealdines)
- stakeholder constraints
- risk management
What are the typical questions managers face?
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- what are the economic conditions in our market (structure, S and D, technology, regulations, future conditions, macroeconomical factors…)
- should our firm be in this business (if so, at what price and output level? can we achieve sustainable competitive advantage?)
- what is our strategy to maintain a competitive advantage in the market? (cost leader? product differentiation? market niche? outsourcing? international perspective?)
- what are the risks involved? (changes in D and S conditions? technological changes and the effect of competition? changes in IR and Inflation R?)
What are the steps of decision making?
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- identifying goals and constraints of the firm (by decision makers)
- acknowledge and understand role of prices, costs, profits (as signals to the firm about the returns associated with various options)
- identifying any unintended consequences or collateral effects of the decision
- implementation typically takes place through the application of MARGINAL ANALYSIS
In an environment of scarcity, managers must focus on….
What are decision examples of this?
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… trade offs that directly of indirectly affect profits
- How to product? substitute
- What prices to change? consumers
- whether to innovate? short&long run profits
What is marginal reasoning?
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- involved when evaluating trade offs
- considering the effect of a small change
How to produce? | What is substitution
- to produce a given level of output, a firm must use more of one input if it uses less of another input
- eg metal and plastic substitute each other in production of cars
Trade off in what prices to change
- consumers buy fewer units of a product when is price rises given their limited budgets
- when rising a price, does it offset the loss from selling fewer units?
Trade off in what to innovate
- there are short and long run profits
- eg investment in innovation lowers short run profits but may raise long run profit
What are additional decision makers?
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- consumers (buy products subject to their limited budgets)
- workers (decide on which jobs to take and how much to work given their scarce time and limits on their abilities)
- rivals (may introduce new superior products or cut the price of existing products)
- strategy
decsions makers | strategy
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- specifies the actions or moves that the manager will make to maximize the firms profit when interacting with a small number or rival firms
- to understand strategies there are helpful tools like game theory
Economic Model | Definition
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- description of the relationship between two or more variables
- medical researchers use for predictin of disease
- economists use for explaining how managers make decisions and explaining resulting market our´tcomes
- managers use to consider hypotheical scenarios (what if analysis) -> help predicting answers and use those to make good decisions
Managerial Economics is a discipline that combines…
- microeconomic theory with management practice
