Documente Academic
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ninth edition
Thomas Maurice
Chapter 1
Managers, Profits, and Markets
McGraw-Hill/Irwin McGraw-Hill/Irwin Managerial Economics, 9e Managerial Economics, 9e
Copyright 2008 by the McGraw-Hill Companies, Inc. All rights reserved.
Managerial Economics
Microeconomics
Study of behavior of individual economic agents
1-2
Managerial Economics
What firm owners must give up to use the resource Owned by others & hired, rented, or leased Owned & used by the firm
1-3
Managerial Economics
1-4
Managerial Economics
+
I m p l i c i t C o s t s
o f O w n e r S u p p l i e d R e s o u r c e s T h e r e t u r n s f o r g o n e b y n o tt a k i n g t h e o w n e r s r e s o u r c e s t o m a r k e t
=
1-5
T o t a lE c o n o m i c C o s t
T h e t o t a lo p p o r t u n i t y c o s t s o f b o t h k i n d s o fr e s o u r c e s
Managerial Economics
Opportunity cost of using land or capital owned by the firm Opportunity cost of owners time spent managing or working for the firm
1-6
Managerial Economics
Accounting profit does not subtract implicit costs from total revenue Firm owners must cover all costs of all resources used by the firm
Objective is to maximize economic profit
1-7
Managerial Economics
Risk premium
1-8
Managerial Economics
Value of a firm =
(1 r )
1-9
(1 r )
...
T
(1 r )
T
t 1
t
(1 r )
t
Managerial Economics
Moral Hazard
When either party to an agreement has incentive not to abide by all its provisions & one party cannot cost effectively monitor the agreement
1-10
Managerial Economics
1-11
Managerial Economics
Price-setting firm
Can set price of its product Has a degree of market power, which is ability to raise price without losing all sales
1-12
Managerial Economics
What is a Market?
A market is any arrangement through which buyers & sellers exchange goods & services Markets reduce transaction costs
Costs of making a transaction other than the price of the good or service
1-13
Managerial Economics
Market Structures
Market characteristics that determine the economic environment in which a firm operates
Number & size of firms in market Degree of product differentiation Likelihood of new firms entering market
1-14
Managerial Economics
Perfect Competition
Large number of relatively small firms Undifferentiated product No barriers to entry
1-15
Managerial Economics
Monopoly
Single firm Produces product with no close substitutes Protected by a barrier to entry
1-16
Managerial Economics
Monopolistic Competition
Large number of relatively small firms Differentiated products No barriers to entry
1-17
Managerial Economics
Oligopoly
Few firms produce all or most of market output Profits are interdependent
Actions by any one firm will affect sales & profits of the other firms
1-18
Managerial Economics
Globalization of Markets
Economic integration of markets located in nations around the world
Provides opportunity to sell more goods & services to foreign buyers Presents threat of increased competition from foreign producers
1-19