Managerial Economics：Applications, Strategy, and Tactics, th Edition.doc

Managerial Economics：Applications, Strategy, and Tactics, 8th Edition Managerial Economics: Applications, Strategy, and Tactics, 8th Edition by McGuigan, Moyer, amp; Harris prepared by Richard D. Marcus University of Wisconsin - Milwaukee ??1999 South-Western College Publishing Chapter 1 Introduction to Managerial Economics Structure of Decision Models Profit’s Role Agency Problems amp; Solutions Not-for-Profit Organizations Why Corporations Have Succeeded Over Other Organizational Forms ??1999 South-Western College Publishing Managerial Economics: An Applied Course Integrates the use of economics, math, and financial analysis to make good business decisions ??1999 South-Western College Publishing TOPICS Demand and Supply Analysis and how to estimated elasticities Production and Cost Analysis and how to estimate relationships Monopoly, Competition, and Oligopolies and good pricing decisions ??1999 South-Western College Publishing Economic Decisions Constraints -- limitations of time, energy, money, productive capacity, regulatory climate, etc. Information -- forecasting, relationships, expectations, possible retaliation by rivals, etc. ??1999 South-Western College Publishing CONSTRAINTS INFORMATION GOALS amp; OBJECTIVES Objectives of the Firm Profit maximization Shareholder wealth The value of the firm, V, is the present value of expected future profits (p) or cash flows, discounted at the shareholders required rate of return, ke, ignoring taxes. ?? V = S p t /(1+ke) t t=1 ??1999 South-Western College Publishing Goals or Objectives Maximize Present Value of Profits = N S (Revenuet - Costst) / (1+ke)t t=1 Decision Model Language: Objective Function = sets up the goals amp; the constraints Decision Rule = shows what is optimal ??1999 South-Western College Publishing EXAMPLE: MAX P { A, B } simple objective function, simple decision rule Pick A if profit {A} gt; profit {B}, otherwise pick B. Max Profit