In most situations, it is preferable to accept temporary excess capacity than to create production bottlenecks when the excess capacity disappears. The Opportunity Cost Concept: The opportunity cost of a decision means sacrificing alternatives. Slide 9 Rules of Differentiation Sum-and-Differences Rule: The derivative of the sum or difference of two functions U and V, is defined as follows. Firm B Advertise Don't Advertise 4, 3 5, 1 2, 5 6, 2 Copyright ©2004 by South-Western, a division of Thomson Learning. Copyright ©2004 by South-Western, a division of Thomson Learning.
Incremental concepts are more flexible than marginal concepts. Copyright ©2004 by South-Western, a division of Thomson Learning. Slide 25 Advertising Example 2 Regardless of what Firm A decides to do, the optimal strategy for Firm B is to advertise. Firm B Advertise Don't Advertise 4, 3 5, 1 2, 5 3, 2 Copyright ©2004 by South-Western, a division of Thomson Learning. Copyright ©2004 by South-Western, a division of Thomson Learning.
Slide 40 Entry Deterrence No Credible Entry Deterrence Firm A Low Price High Price Credible Entry Deterrence Firm A Low Price High Price Prepared by Robert F. If Firm A chooses to advertise, the payoff is 5. Firm A Advertise Don't Advertise Prepared by Robert F. Firm A Advertise Don't Advertise Prepared by Robert F. It is an administrative organization, utilising a pool of resources. Therefore, the principle should be almost the opposite to those that appeared at first glance. His opportunity cost would then be Rs.
Slide 23 Monopolistic Competition Long-Run Equilibrium Cost with selling expenses Cost without selling expenses Prepared by Robert F. One may ask how much money today would be equivalent to Rs. So opportunity costs require the measurement of sacrifices. Mansfield : He defines that managerial economics is concerned with the application of economic concepts and economic tools to the problems of formulating rational decision making. Slide 21 Monopolistic Competition Short-Run Equilibrium Prepared by Robert F.
Copyright ©2004 by South-Western, a division of Thomson Learning. Uncertainty is a condition where there is a possibility of more than one result. They may be thinking which durable raw material is going to be costlier during the next couple of months. Otherwise, the payoff is 2. The following example clarifies the point. .
There are many problems related to capital investments which involve considerable amount of time and labor. Slide 3 Government Regulation Consumer Protection Federal Trade Commission Act of 1914 — Protects firms against unfair methods of competition based on misrepresentation — Price of products — Country of origin — Usefulness of product — Quality of product — Wheeler-Lea Act of 1938 prohibits false or deceptive advertising Prepared by Robert F. Slide 23 Uncertainty: Minimax Regret The payoff matrix below shows the payoffs from two states of nature and two strategies. By building up propositions on the basis of a set of assumptions, positive economics tries to explain economic phenomenon. Determination of price of a commodity, work policy and business strategies of a business enterprise; iv. Copyright ©2004 by South-Western, a division of Thomson Learning. Management science is concerned with techniques for improvement of decision-making.
Slide 9 Perfect Competition: Short-Run Equilibrium Prepared by Robert F. Hague, we can argue that there are links between managerial economics and management science. Broadly it is applied economics Micro-economics Micro-ec onomics applied to internal issues : Operational issues are of internal nature. Copyright ©2004 by South-Western, a division of Thomson Learning. This distinction is not based on any calendar period, say, a month, a quarter or a year. A firm has to take up a right pricing decision. So the contribution to overhead and profit is 50 paise per unit or Rs.
Better choices, better prediction, etc. Value judgments are, thus, pronounced in normative economics. There is another way of illustrating the discounting principle. The Nash equilibrium is for both firms to advertise. The Incremental Concept : It is easy to describe incremental reasoning. So the variable cost in activity A not counting the labour cost will be higher.
Copyright ©2004 by South-Western, a division of Thomson Learning. Demand for Managerial Economics The demand for this subject has increased post liberalization and globalization period primarily because of increasing use of economic logic, concepts, tools and theories in the decision making process of large multinationals. For the firm illustrated in Fig 1. The following diagram may be used to compare the marginal and incremental approaches. Classical definition Welfare Definition- Marshall, A. The managerial economics helps the managers to come forward with such policies and planning which can help the organization to attain its desired goal-- the maximization of profit.