Managerial Economics

MANAGERIAL ECONOMICS

Managerial decisions are strategies carried out to obtain a specific aim, that is maximizing profit. In order to reach this goal, the firm must be efficient.

Macroeconomic is the study of the economic system as a whole, while microeconomic is the study of individual choices of both consumers and producers. Managerial economics takes concepts from both these two disciplines that are interrelated in the economic policies. Managerial economics is the study of the manager's choices.

A management is effective when there are some results that are producing at the minimum cost (being effective means being efficient). The basic principles comprising Effective Management are:

• Identify goals and constraints (the most common are costs, but they could be also government constraints in terms of pollutions, environmental sustainability such as tax emissions, minimum and maximum prices);
• Recognize the nature and importance of profits (there is more than one definition of profit that depends on the type of costs);
• Understand incentives (for employees if some goals are reached, for the firm if it produces environmental friendly goods);
• Understand markets (in every market there is a demand and a supply, so understanding market means understanding the interactions of demand and supply. There are different kinds of market, depending on the type of good/service offered, the labour, the financial market... On the demand side, a negative correlation takes place between prices and quantities. In the labour market, on the supply side, there is a positive correlation between prices and quantities. If prices increase, the firm is more propense to produce higher quantity of goods. Only in the equilibrium point we can find the equilibrium price and quantity —> the manager's aim);
• Recognize the time value of money (there is a time gap between the instant in which the costs are born and the one in which revenues are received);
• Use marginal analysis (a way in which we see if we can increase benefits by increasing or changing our production. One of the decision of the firm is producing within the firm or externalise the production).

The manager is a person who directs resources (L-labour, C-capital such as machineries/buildings/money and A-technologies that help to improve the efficiency in the input use and also in the human activities) to achieve a stated goal (profit maximisation).

• Responsibility for her/his own actions as well as for actions of individuals, machines and/or inputs under the manager’s control. Responsibility means controlling these actions;
• Directs the efforts of others (by motivating and giving incentives);
• Purchases inputs used in the production of the firm's output;
• Directs the product price or quality decisions (if the production is standardised, a manager can adopt a quantity strategy, while if the production is specialised, a manager can adopt a price strategy).

Economics is the science of making decisions in the presence of scarce resources. Resources are anything used to produce a good or service, or achieve a goal. A manager decides first if a production should take place and second if the production should be done within the firm or in an external place. Then, the quantity need to be calculated. Moreover, a manager has to think about if it is beneficial to create a new line of production (that means differentiation). Decisions are important because scarcity implies trade-offs. The economics aim is driving production and consumption of goods. The main goal is minimising the resources used in the production process in order to be the most efficient possible.

Managerial Economics is the study of how to direct scarce resources (input) in the way that most efficiently achieves a managerial goal. Manager of a Fortune 500 company that makes computer:

1. Should the company purchase components (like disk drives and chips) from other manufacturers or produce them within the firm?
2. Should the firm specialize in making one type of computer or produce several different types (differentiation)?
3. How many computers should the firm produce, and at what price should you sell them?
4. How many employees (L)? What about their productivity (that is the contribution of each employee to the total revenue)?

MANAGERIAL ECONOMICS

Managerial decisions are strategies carried out to obtain a specific aim, that is maximising profit. In order to reach this goal, the firm must be efficient.

Macroeconomic is the study of the economic system as a whole, while microeconomic is the study of individual choices of both consumers and producers. Managerial economics takes concepts from both these two disciplines that are interrelated in the economic policies. Managerial economics is the study of the manager's choices.

A management is effective when there are some results that are producing at the minimum cost (being effective means being efficient). The basic principles comprising Effective Management are:

• Identify goals and constraints (the most common are costs, but th