01 What ManEc is about

Question 1

Definition ManEc

Answer 1

• use of economic analysis to make business decisions involving the best use (allocation) of an organisations scarce resources

Question 2

The job of the chief executive officer is to….

1.
2.

However it is critical that he….

Answer 2

• 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

Question 3

The CEO orders the production managers to…

The CEO asks the market research manager to…

Answer 3

… minimize the cost of producing the praticular good or service

… determine how many units can be sold at any given price and so forth

Question 4

Decisions made by managers and constraints

1. Production manager
2. HR manager
3. marketing manager

A firms top manager must coordinate all this. What could be his constraints? (4)

Answer 4

1. achieve a production target at the lowest possible cost | use the existing factors
2. design compensation systems to encourage employees to work hard | limited resources and employees already in the firm
3. allocate an advertising budget to promote the product most effectively | limited marketing budget

• financial constraints
• time constraints (dealdines)
• stakeholder constraints
• risk management

Question 5

What are the typical questions managers face?

1.
2.
3.
4.

Answer 5

• 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?)

Question 6

What are the steps of decision making?

1.
2.
3.
4.

Answer 6

1. identifying goals and constraints of the firm (by decision makers)
2. acknowledge and understand role of prices, costs, profits (as signals to the firm about the returns associated with various options)
3. identifying any unintended consequences or collateral effects of the decision
4. implementation typically takes place through the application of MARGINAL ANALYSIS

Question 7

In an environment of scarcity, managers must focus on….

What are decision examples of this?
1.
2.
3.

Answer 7

… trade offs that directly of indirectly affect profits

1. How to product? substitute
2. What prices to change? consumers
3. whether to innovate? short&long run profits

Question 8

What is marginal reasoning?

1.
2.

Answer 8

• involved when evaluating trade offs
• considering the effect of a small change

Question 9

How to produce? | What is substitution

Answer 9

• 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

Question 10

Trade off in what prices to change

Answer 10

• 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?

Question 11

Trade off in what to innovate

Answer 11

• there are short and long run profits
• eg investment in innovation lowers short run profits but may raise long run profit

Question 12

What are additional decision makers?

1.
2.
3.
4.
5.

Answer 12

1. consumers (buy products subject to their limited budgets)
2. workers (decide on which jobs to take and how much to work given their scarce time and limits on their abilities)
3. rivals (may introduce new superior products or cut the price of existing products)
4. strategy

Question 13

decsions makers | strategy

1.
2.

Answer 13

• 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

Question 14

Economic Model | Definition

1.
2.
3.

Answer 14

• 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

Question 15

Managerial Economics is a discipline that combines…

Answer 15

• microeconomic theory with management practice

Question 16

An important function of a manager is ro decide how to…

Answer 16

… allocate a firms scarce resources