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Managerial Economics Course

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Managerial Economics Course Outline

Instructor Dr. Yasmine Kamal Yasmine_k@feps.edu.eg Objectives The course focuses on the fundamental principles of microeconomics most relevant to managers. These include demand, costs, production, pricing, market structure, market equilibrium, and strategic interaction. Profit maximization by firms, market equilibrium in different competitive settings, and pricing strategies are studied. Course Prerequisites Microeconomics Main Textbook Baye , Michael R. and Prince, Jeffrey, Managerial Economics and Business Strategy , McGraw-Hill Irwin, 9 th edition 2017. Other textbooks: Managerial Economics by Christopher Thomas and S. Charles Maurice, 12 th edition. Managerial Economics by Paul Keat and Philip Young, 7 th edition.

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Managerial Economics Course Outline

Assessment 70% of the grade for the final exam 20% for the mid-term exam 10% for the year's work (Assignments, quizzes,..)

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Managerial Economics Course Outline

Course Content   Chapter 1 The Fundamentals of Managerial Economics Chapter 3 Quantitative Demand Analysis Chapter 5 The Production Process and Costs Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Chapter 10 Game Theory: Inside Oligopoly Chapter 11 Pricing Strategies for Firms with Market Power Chapter 13 Advanced Topics in Business Strategy Selected parts of Chapter 14 (as time permits)

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The Fundamentals of Managerial Economics

Chapter 1

© 2017 by McGraw-Hill Education. All Rights Reserved. Authorized only for instructor use in the classroom. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Learning Objectives

Summarize how goals, constraints, incentives, and market rivalry affect economic decisions. Distinguish economic versus accounting profits and costs. Explain the role of profits in a market economy. Apply the five forces framework to analyze the sustainability of an industry’s profits. Apply present value analysis to make decisions and value assets. Apply marginal analysis to determine the optimal level of a managerial control variable. Identify and apply six principles of effective managerial decision making.

© 2017 by McGraw-Hill Education. All Rights Reserved.

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The Manager

A person who directs resources to achieve a stated goal. Directs the efforts of others. Purchases inputs used in the production of the firm’s output. Directs the product price or quality decisions.

© 2017 by McGraw-Hill Education. All Rights Reserved.

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Introduction

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Economics

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. Decisions are important because scarcity implies trade-offs.

© 2017 by McGraw-Hill Education. All Rights Reserved.

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Introduction

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The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal. Should a firm purchase components – like disk drives and chips – from other manufacturers or produce them within the firm? Should the firm specialize in making one type of computer or produce several different types? How many computers should the firm produce, and at what price should you sell them?

© 2017 by McGraw-Hill Education. All Rights Reserved.

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Introduction

Managerial Economics Defined

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Basic principles comprising effective management: Identify goals and constraints Recognize the nature and importance of profits Understand incentives Understand markets Recognize the time value of money Use marginal analysis

© 2017 by McGraw-Hill Education. All Rights Reserved.

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Economics of Effective Management

The Economics of Effective Management

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Identify Goals and Constraints

Well-defined goals Firm’s overall goal is to maximize profits Constraints make it difficult to achieve goals Available technology Prices of inputs used in production

© 2017 by McGraw-Hill Education. All Rights Reserved.

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The Economics of Effective Management

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Recognize the Nature and Importance of Profits

Accounting profit Total amount of money taken in from sales (total revenue) minus the dollar cost of producing goods or services. Economic profit The difference between total revenue and cost opportunity cost. Opportunity cost The explicit cost of a resource plus the implicit cost of giving up its best alternative.

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The Economics of Effective Management

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The role of profits Profits are a signal to resource holders where resources are most highly valued by society.

© 2017 by McGraw-Hill Education. All Rights Reserved.

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The Economics of Effective Management

Recognize the Nature and Importance of Profits

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Five Forces and Industry Profitability

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The Economics of Effective Management

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Understand Incentives

Changes in profits provide an incentive to how resource holders use their resources. Within a firm, incentives impact how resources are used and how hard workers work. One role of a manager is to construct incentives to induce maximal effort from employees.

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The Economics of Effective Management

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Two sides to every market transaction: buyer and seller Bargaining position of consumers and producers is limited by three rivalries in economic transactions: Consumer-producer rivalry Consumer-consumer rivalry Producer-producer rivalry Government and the market

© 2017 by McGraw-Hill Education. All Rights Reserved.

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The Economics of Effective Management

Understand Markets

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Recognize t he Time Value of Money

Often a gap exists between the time when costs are borne and benefits received. Managers can use present value analysis to properly account for the timing of receipts and expenditures.

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The Economics of Effective Management

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Present Value Analysis 1

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The Economics of Effective Management

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Present Value Analysis II

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The Economics of Effective Management

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© 2017 by McGraw-Hill Education. All Rights Reserved.

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The Economics of Effective Management

The Time Value of Money in Action

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Thank you

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