Chapter 1: 1 Introduction to Managerial Economics
Summary
TLDRThis session introduces managerial economics, focusing on the need for its study, scope, and key concepts. It covers the role of a manager in optimizing inputs and maximizing profits through decision-making processes. The transcript discusses economic concepts like scarcity, opportunity cost, and the distinction between micro and macroeconomics. Practical examples illustrate managerial challenges such as product selection, production methods, pricing strategies, and competition response. The session emphasizes the importance of applying economic theories and quantitative methods to address managerial decision problems effectively.
Takeaways
- 📚 Managerial economics focuses on applying economic concepts, theories, and tools to solve business problems.
- 💼 The key goal of a manager is to maximize profits by making optimal decisions about input production, volume, and pricing.
- ⚙️ There is a conversion process in every organization where inputs (labor, capital, land) are turned into outputs (goods or services).
- 🏭 Decision-making in managerial economics includes whether to produce inputs in-house or buy them, choosing the right production methods, and determining production volumes.
- 📊 Overproduction can lead to high inventory costs, while underproduction results in lost sales and dissatisfied customers.
- 💡 Economic concepts like scarcity, opportunity cost, and the relationship between limited resources and unlimited needs drive managerial decision-making.
- 🏦 Managerial economics is largely based on microeconomics, which studies individual behavior like demand, supply, and pricing.
- 📈 Macroeconomics studies aggregate economic behavior such as national GDP, unemployment, and inflation, but managerial economics mainly uses microeconomic tools.
- 🔄 Opportunity cost refers to the sacrifice of the next best alternative when making a choice between competing uses of limited resources.
- 🔍 Tools and methods like forecasting, statistical analysis, and numerical analysis help managers make informed decisions to solve economic problems.
Q & A
What is managerial economics?
-Managerial economics deals with the application of economic concepts, theories, tools, and methods to solve practical problems in business. It is sometimes called applied economics.
Why is there a need to study managerial economics?
-Studying managerial economics helps managers make optimal decisions in business by applying economic theories and concepts to manage the conversion of inputs into outputs efficiently, maximizing profits while addressing various challenges.
What are some key decisions managers need to make to maximize profits?
-Managers need to decide on producing inputs internally or purchasing them, the combination and method of production, the volume of production, pricing strategies, and how to react to competitors' decisions.
What happens if a company produces too much or too little?
-Overproduction can lead to high inventory costs, wastage, and tied-up capital, while underproduction may result in lost sales and customer dissatisfaction, potentially driving customers to competitors.
How does managerial economics help with decision-making?
-Managerial economics provides tools, concepts, and theories to help managers make proper and optimal decisions about inputs, production methods, pricing, and other key areas to maximize profits.
What is the difference between microeconomics and macroeconomics?
-Microeconomics focuses on individual economic behavior, such as the demand and supply of a company, while macroeconomics deals with the aggregate economic behavior, like national GDP, inflation, and unemployment.
Why does economics exist, according to the transcript?
-Economics exists because of the scarcity of resources and the unlimited wants of individuals and businesses. If resources were unlimited, there would be no need for economics.
What is opportunity cost in managerial economics?
-Opportunity cost is the benefit lost from choosing one option over another. It represents the value of the next best alternative that must be sacrificed when making a decision.
How does opportunity cost affect decision-making in businesses?
-Opportunity cost forces businesses to make choices between competing alternatives, such as investing in new computers versus hiring new workers, as they cannot afford both with limited resources.
What are some of the key problems managers face in decision-making?
-Managers face various problems, including selecting the right products, determining the optimal volume of production, setting the correct price, deciding on strategies for organizational design, and responding to competitors.
Outlines
📚 Introduction to Managerial Economics
The first paragraph introduces managerial economics and its importance in decision-making for managers. It discusses the conversion process of inputs (labor, capital, land) into outputs (goods and services) in various types of organizations, including academic institutions and manufacturing companies. The role of managers is emphasized, particularly in maximizing profit by making optimal decisions about input production, method selection, and determining the optimal volume of production to avoid overproduction or underproduction.
🔄 Impact of Production Decisions on Profit
The second paragraph continues the discussion on how managerial decisions affect production and profit. It highlights the consequences of underproduction (leading to dissatisfied customers and loss of market share to competitors) and overproduction (leading to inventory costs and capital being tied up in unsold products). The importance of reacting strategically to competitors' pricing decisions is also mentioned as a key managerial challenge.
📈 Tools and Theories in Managerial Economics
This paragraph introduces the application of economic concepts, tools, and theories in business to solve practical problems, referred to as managerial economics or applied economics. The term 'management' is defined as a continuous process involving planning, organizing, staffing, directing, and controlling. Economics is defined as a social science that studies how society allocates limited resources to meet unlimited needs. This scarcity of resources creates the foundation for economic studies and managerial decision-making.
⚖️ Economics and Resource Scarcity
The fourth paragraph delves deeper into the core concepts of economics, especially the implications of resource scarcity. It explains that economics would not exist if resources were unlimited. The distinction between microeconomics (study of individual consumers and firms) and macroeconomics (study of aggregate economic behavior) is introduced, with managerial economics relying primarily on microeconomic theories for decision-making. It also touches on economic problems arising from the imbalance between scarce resources and unlimited wants.
📊 Economic Problems and Opportunity Cost
The fifth paragraph focuses on decision-making in the context of scarce resources. It introduces the concept of opportunity cost—the value of the next best alternative that is foregone when making a choice. Examples are provided from businesses, governments, and individuals, demonstrating how decisions involve trade-offs, with opportunity costs being the benefits missed by not choosing the other options. This concept is critical for managers in making informed decisions that optimize resource use.
Mindmap
Keywords
💡Managerial Economics
💡Scarce Resources
💡Opportunity Cost
💡Microeconomics
💡Macroeconomics
💡Input-Output Conversion Process
💡Profit Maximization
💡Decision-Making
💡Economic Problem
💡Applied Economics
Highlights
Introduction to managerial economics covering its scope, importance, and basic concepts.
Managerial economics helps managers optimize decisions related to production, pricing, and profit maximization.
There is a conversion process from inputs (labor, capital, land) to outputs (goods and services) in all organizations.
Managers face challenges like choosing between producing inputs themselves or purchasing from external parties.
Proper decision-making by managers can help avoid overproduction (leading to high inventory costs) or underproduction (leading to reduced sales).
Managerial economics applies economic theories, tools, and concepts to solve practical business problems.
The study of economics is essential due to the scarcity of resources and unlimited human wants.
Microeconomics focuses on individual economic behavior, while macroeconomics looks at aggregate economic behavior.
Managerial economics heavily relies on microeconomic theories like demand, production, pricing, and profit analysis.
Economic problems arise due to the existence of scarce resources and unlimited wants.
Managers must make choices, often involving opportunity cost, which is the foregone benefit of the next best alternative.
Examples of opportunity costs are presented, such as choosing between new computers or new workers for businesses.
Economic decision-making requires the use of both economic concepts and quantitative methods for optimal solutions.
Management is defined as a continuous process involving planning, organizing, staffing, directing, and controlling.
Economics is a social science that deals with the allocation of scarce resources to meet unlimited human needs.
Transcripts
hello everybody and welcome to
managerial economics
discussion this is chapter one
in this session we are going to discuss
about introduction
or overview part of managerial economics
under this topic we will specifically
discuss
what is the need of managerial economies
why
we need to study why
we learn managerial economics the reason
behind
why we learn managerial economics
definition of managerial economics scope
of managerial economics and
basic concepts of or some basic concept
of managerial economics
proceeding to the main discussion let us
discuss about
what is happening in the organization
in any organization whatsoever the case
that means whether it is private
government or non-government
like nho there is a converging process
of
input to the output
inputs can be called as factor of
production
such as labor capital
land and interplanner and the output may
be categorized into
two major division that is goods and
services
so
whatever the company is
there is still a conversion process of
those
inputs to the outputs
for example if we take academic
institutes
there is a conversion of
the input to the output that is service
they provide service educational service
and if we consider manufacturing
companies
they convert those inputs into
physical goods
in any way there is a conversion process
from inputs output that conversion
process
will be managed by a manager
a manager in the meanwhile one of the
main
one of the main goals of a manager is to
maximize
the output in the conversion process
a manager is aimed to maximize the
profit of the organization
maximizing the profits
the profit of the organization can be
achieved by doing the following
or deciding or making a decision
making proper decision on the following
points
in order to maximize the organization
profit
we need we need to
decide we need to make optimum decisions
on the following points
the points are either to produce
all inputs by ourselves or part of the
inputs
by ourselves or purchase those inputs
from
the external parties
or the external market we can say
and the next is combination of inputs
the input combination and the method
that we are going to use
the method of manufacturing for example
mass production we can use our job shop
production
or batch production or even the
technology that we are using in the
production
and they are the next is the amount of
production
volume of production and the price
we need to decide the optimum volume of
production
that can reduce balls
that can reduce over production
and also avoid under production
it should be optimal
should be optimum volume of production
in order to
avoid both of our production in under
production because both
over and under production results
negative impact for the factory if we
consider overproduction
it may result inventory cost higher
inventory cost
wastage of some products
and even our capital will be tied to
that product that goods in the case of
under production
it reduced sales which is obvious
our customers may not get sufficient
amount of product from us so
they become dissatisfied and ultimately
they will go to another competitors
so it is a negative impact for our
organization
and the other is making single product
or producing several different types of
products
we need to decide and the other is
the reaction of our firmness to the
decision made by the competitors
for example if our competitors increase
their products price so what will be our
discussion
well sorry what will be our decision
our decision should be either
increasing similarly or decreasing or
it may be other measures
in general these are not the challenges
faced by the manager
while the manager is trying to maximize
the profit
the manager may face much more
challenges
among those challenges these are the
main challenges that the manager need to
make proper decision
in order to make proper decision
there is a main point by the way in
order to make
proper or optimum or near to correct
decision
a manager need to use
tools concepts
and theories of managerial economics
here is a point
a manager need to use
through this conceptus principle stories
of managerial economies of economics
in order to make proper or optimum
decision making on the above listed
issues
next let us see now
the definitions of managerial economics
managerial economics deals with
application of economic concepts
theories tools and methods to solve
practical problems in a business
there is there are problems in a
business so
we adopt those concept stories tools and
methods
to solve that specific problem this is
what you call
managerial economics sometimes we call
applied
economics applied economics applied
economics in a business
as you know managerial economics is a
combination of
two words two terms that is
management and economics let us see each
term
one by one management is a process
it is a continuous process by the way it
is a continuous never ending process
process of fire functions we start from
planning
then organizing then staffing
then directing and the final step is
controlling
controlling what we have planned before
or we can say management is doing
through
others or both art and
science we can't define management as
both art and science
and the managers in dawn as you know a
manager is a person
who directs resourceful achievement
aesthetic goals or a manager
manages the converging process input to
the output
in order to achieve the stated goals
management is a process and manager is a
person it's a noun and it's a person
on the other side economics is a science
or we can say it is a social science
categorized under social science
which is organizing and allocating of
scarce resources to achieve
the desert objectives or it is a study
how the society uses limited resources
to achieve their unlimited needs
by the way here there are there is
limited needs no no limited resources i
mean limited
resources limited inputs and on the
other hand we have
unlimited needs
it is a social science that deals with
the behavior of human beings in the
production distribution consumption of
goods and services in a world of scarce
resources
now let me take a pause and let me ask
you one question that is
what if what will be economics if
resources are sufficiently available or
if we have unlimited resources
okay if we have unlimited resources in
general
there is no need to study economics
economics can't exist if there is
unlimited
resources if there is unlimited resource
there is no economy
no need to study economics
moving forward
economics can be majorly categorized
into macroeconomics
microeconomics and macroeconomics
microeconomics as the name indicates
it is a study of individual economic
behavior for example
the study of someone's demand or an
individual's demand or
study about the supply of one company or
a fear
or the demand of that company can be
termed as microeconomics
is a study of individual consumers and
producers in a specific
market for example supplement demand
price of output costs and incomes can be
categorized
into microeconomics when those
individuals
will be aggregated will will be summed
up and they can
form the aggregate level of economy that
is
macroeconomics macroeconomic study about
the economy behavior
of the market the aggregate economic
behavior
study was agriculture because the agreed
can be obtained from the individual
economic behavior for example national
output can be
aggregated those individuals living in
some specified specific nation is
aggregated
and when we aggregate the ethiopians for
example
we can get the national level variables
like national gdp unemployment inflation
physical and monetary policy trade and
finance among
nations can be termed as micro economics
macro economics in general
managerial economy is majorly based on
microeconomics theories and concepts
let us see some more details about
microeconomics and macro economics
by the way sometimes we can say
macroeconomics and microeconomics are
the scope of managerial economics
as you see microeconomics have different
tools of demand can be
categorized into theories of demand or
microeconomics include story of demand
euro production
pricing tourism parasinga profit
analysis and theory of capital
investment
about a single firm
or a single individual thesis are
concerned about the individuals
whereas the economic environments
shall invariably political environments
are the aggregate level of economic
behavior and majorly
as we said in the previous slide
managerial economics is concerned about
or uses
those theories of micro economics
measures
the next section as we said before
for the economics to exist
there should be a scarce resource scarce
resource on the
one hand and unlimited
wants on the other hand unlimited ones
on the other hand
so economic problem arises because of
the scarce resource
in one hand the scarce resource
scarce resource in one hand and
unlimited wants which is
very more or which is greater than
that of the scarce resource by the way
our needs are unlimited if we
fulfill one need we also extend our
needs to the other
needs so our needs are unlimited but
our resources are limited
so the economic problem arises because
of these
two issues scarce resources on the wall
on hand
and it is
by the way there is managerial problems
because of
the scarce resource managerialization
problems
among managerialization problems one is
product selection selecting what we are
going to produce
the output volume of output pricing
what price should be
stated for making the profit and
to be competitive in the market
internet strategy organization design
the design of your organizations
the layout of the organization product
development promotion strategy
work worker hiring and training
investment and financing
these all are the management decision
problems
that needs good decision by the manager
and there are economic concepts
marginalized
theories due to the fear ministerial
public choice theory these are the
concepts
from economics and on the other side
there is quantity meters like numerical
analysis statistical estimation
forecasting procedure and so on so
the manager uses both these economic
concepts and quantity methods to solve
the management decision problems
in order to get on the optimal
decision in order to arrive
the optimal to
the upper management decision problems
the manager uses
economic concepts and quantity method to
get the problems to get
the answer for the problems to get
optimal solution for the problems
this is all about the definitions of
managerial
economics there are some common terms
in economics like scarcity unlimited
resources and wants these are important
terms
frequently used in economics
this one is the let's move to the last
section
and these are some basic concepts about
managerial economics
as you know because of the scarce
resources because of the resources are
already scarce or limited by the way
whatever the country is or
whatever the individual is
if we take the wealthiest individual or
the wealthiest country
in the world still there is a gap
between needs and
resources in general there is scarce
resources
our resources are scarce and that scares
resources
make us to choose
or make us
to prioritize our problems or our
needs we need to prioritize our needs
according to our maybe criteria clarity
operating the list
so there is a need to choose
to choose between different use of
scarce resource maybe different use of
combinations economic choice is
a must because of scarce resources
economic choice is deciding
deciding between different use of scarce
resource
here is the main point that is
opportunity cost it is the amount of
other products that
must be foregone for gun
or sacrifice to produce a unit of a
product
for example if i have 100
and if i have two needles that is
bank item a
or buying item b
with my handlebar
i have to choose either bank item a or
bank item b
but hundred bill is not sufficient to
buy both
so i need to choose one if i want to
choose one
b will be the opportunity cost that is
the foregone or the sacrifice
if i choose a b is the second best
alternative for good
the second best alternative for code
that is
the opportunity cost the opportunity
cost
of using or selecting product
a bank product a
b can be the benefit that is lost in
making a choice between two competing
use of scarce resources
so when i choose a
i miss b because of choosing
a so b is an opportunity
cost the missed cost or the sacrifice
or the foregone let us see some more
examples about the opportunity cost in
the next slide
these are the decision maker by the way
in the first column there are decision
makers the business
the government the individuals
they have to choose either of the two
products
for example for the business new
computers
new computer or fax
new worker or delivery man office party
or pay
for both and the government is also
two alternatives unemployment benefits
new roads
weapons more hospital beds individuals
can also
make a choice between mass bar using
mars bar
or to use in to get service in 2x bar
whether to buy a t-shirt or to buy dvd
to go beach holiday or fixing the roof
these are the alternatives and the
business
chooses this column the business
government and the individuals
chooses this column this column
thus these are the missed one
these are the missed one they didn't
choose this
so these are the opportunity cost
the opportunity cost what they could
have
done what they could have done these are
the opportunity cost
because the business selected the
government select
and the individual selectors this column
this column because they choose this
column the last column is an opportunity
cost in general everything has an
opportunity cost everything has an
opportunity
cost and this is all about
today's discussion if you have comment
suggestions or question you can put it
by the comments you can put it either in
telegram on
or on youtube channels
so i will respond to you later and if
you want to read more use this reference
book so thank you for listening have a
good time
bye
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