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Managerial Economics
Rationale
Managerial economics (also called business economics), is a branch of economics that applies microeconomic analysis to specific business decisions. As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis and correlation, Lagrangian calculus (linear). If there is a unifying theme that runs through most of managerial economics it is the attempt to optimise business decisions given the firm's objectives and given constraints imposed by scarcity, for example through use of operations research and programming.
Almost any business decision can be analysed with managerial economics techniques, but it is most commonly applied to:
Risk analysis - various uncertainty models, decision rules, and risk quantification techniques are used to assess the riskiness of a decision.
Production analysis - microeconomic techniques are used to analyse production efficiency, optimum factor allocation, costs, economies of scale and to estimate the firm's cost function.
Pricing analysis - microeconomic techniques are used to analyse various pricing decisions including transfer pricing, joint product pricing, price discrimination, price elasticity estimations, and choosing the optimum pricing method.
Capital budgeting - Investment theory is used to examine a firm's capital purchasing decisions.
At universities, the subject is taught primarily to advanced undergrads. It is approached as an integration subject. That is, it integrates many concepts from a wide variety of prerequisite courses. In the UK it is possible to read for a degree in Business Economics which is often comprised of managerial economics, financial economics and industrial economics.
External Sources and Links
William J. Baumol (1961) "What Can Economic Theory Contribute to Managerial Economics?," American Economic Review, vol. 51, no. 2, May 1961, pp 142-46.
Ivan Png (2002) Managerial Economics, Malden, MA: Blackwell.
Keith Weigelt (2006). Managerial Economics
Elmer G. Wiens The Public Firm with Managerial Incentives
NA, (2007). "managerial economics," Encyclopædia Britannica online Concise Encyclopedia entry.
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Teaching and Learning Resources
The Firm
- The Definition and Scope of Managerial Economics
- Business Objectives and Basic Models of the Firm
- The Boundaries of the Firm
- Ownership and Control of the Firm
- The
Multinational Enterprise
A business (also known as company, enterprise, or firm) is a legally recognized organization designed to provide
goods, services, or both to consumers or tertiary business in exchange for money.[1] Businesses are predominant in capitalist economies, in which most businesses are privately owned and typically formed to earn profit that will increase the wealth of its owners. The owners and operators of private, for-profit businesses have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Businesses can also be formed not-for-profit or be state-owned.
The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope — the singular usage (above) to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the music business" and compound forms such as agribusiness, or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.
External links
A multi- national corporation (MNC) or enterprise (MNE),[1] is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.
The Dutch East India Company was the second multinational corporation in the world (the first, the British East India Company, was founded two years earlier) and the first company to issue stock, and it was the largest of the early multinational companies.[2] It was also arguably the world's first megacorporation, possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies.[3]
Some multi- national corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization.
- Market imperfections
- International power
- Culture
- Different methods of communication across different cultures
- Seven Methods of managing across cultures
- Advertisement in different countries
- Companies that adapted to foreign market successfully
- Companies that failed to adapt to foreign culture
- Transnational Corporations
- Micro-multinationals
- Criticism of multinationals
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Theories
of the Multinational Enterprise Check the availability and buy your books from our Bookshop. |
The Market Environment
Tutorials
- Consumer Behaviour
- Demand and Elasticity
- Estimating and Forecasting Demand
- Demand Estimation and Forecasting
- Production and the Determination of Costs
- Elementary Models of Competitive Structure
- The Five Forces Approach of Competitive Structure
- Risk and Uncertainty
Readings
The market environment is a marketing term and refers to all of the forces outside of marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. The market environment consists of both the macroenvironment and the microenvironment.
The microenvironment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets, competitors, and publics. The company aspect of microenvironment refers to the internal environment of the company. This includes all departments, such as management, finance, research and development, purchasing, operations and accounting. Each of these departments has an impact on marketing decisions. For example, research and development have input as to the features a product can perform and accounting approves the financial side of marketing plans and budgets. The suppliers of a company are also an important aspect of the microenvironment because even the slightest delay in receiving supplies can result in customer dissatisfaction. |
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Marketing managers must watch supply availability and other trends dealing with suppliers to ensure that product will be delivered to customers in the time frame required in order to maintain a strong customer relationship.
Marketing intermediaries refers to resellers, physical distribution firms, marketing services agencies, and financial intermediaries. These are the people that help the company promote, sell, and distribute its products to final buyers. Resellers are those that hold and sell the company’s product. They match the distribution to the customers and include places such as Wal-Mart, Target, and Best Buy. Physical distribution firms are places such as warehouses that store and transport the company’s product from its origin to its destination. Marketing services agencies are companies that offer services such as conducting marketing research, advertising, and consulting. Financial intermediaries are institutions such as banks, credit companies and insurance companies.
Another aspect of microenvironment is the customers. There are different types of customer markets including consumer markets, business markets, government markets, international markets, and reseller markets. The consumer market is made up of individuals who buy goods and services for their own personal use or use in their household. Business markets include those that buy goods and services for use in producing their own products to sell. This is different from the reseller market which includes businesses that purchase goods to resell as is for a profit. These are the same companies mentioned as market intermediaries. The government market consists of government agencies that buy goods to produce public services or transfer goods to others who need them. International markets include buyers in other countries and includes customers from the previous categories.
Competitors are also a factor in the microenvironment and include companies with similar offerings for goods and services. To remain competitive a company must consider who their biggest competitors are while considering its own size and position in the industry. The company should develop a strategic advantage over their competitors.
The final aspect of the microenvironment is publics, which is any group that has an interest in or impact on the organization’s ability to meet its goals. For example, financial publics can hinder a company’s ability to obtain funds affecting the level of credit a company has. Media publics include newspapers and magazines that can publish articles of interest regarding the company and editorials that may influence customers’ opinions. Government publics can affect the company by passing legislation and laws that put restrictions on the company’s actions. Citizen-action publics include environmental groups and minority groups and can question the actions of a company and put them in the public spotlight. Local publics are neighborhood and community organizations and will also question a company’s impact on the local area and the level of responsibility of their actions. The general public can greatly affect the company as any change in their attitude, whether positive or negative, can cause sales to go up or down because the general public is often the company’s customer base. And finally those who are employed within the company and deal with the organization and construction of the company’s product.
The macroenvironment refers to all forces that are part of the larger society and affect the microenvironment. It includes concepts such as demography, economy, natural forces, technology, politics, and culture.
Demography refers to studying human populations in terms of size, density, location, age, gender, race, and occupation. This is a very important factor to study for marketers and helps to divide the population into market segments and target markets. An example of demography is classifying groups of people according to the year they were born. These classifications can be referred to as baby boomers, who are born between 1946 and 1964, generation X, who are born between 1965 and 1976, and generation Y, who are born between 1977 and 1994. Each classification has different characteristics and causes they find important. This can be beneficial to a marketer as they can decide who their product would benefit most and tailor their marketing plan to attract that segment. Demography covers many aspects that are important to marketers including family dynamics, geographic shifts, work force changes, and levels of diversity in any given area.
Another aspect of the macroenvironment is the economic environment. This refers to the purchasing power of potential customers and the ways in which people spend their money. Within this area are two different economies, subsistence and industrialized. Subsistence economies are based more in agriculture and consume their own industrial output. Industrial economies have markets that are diverse and carry many different types of goods. Each is important to the marketer because each has a highly different spending pattern as well as different distribution of wealth.
The natural environment is another important factor of the macroenvironment. This includes the natural resources that a company uses as inputs and affects their marketing activities. The concern in this area is the increased pollution, shortages of raw materials and increased governmental intervention. As raw materials become increasingly scarcer, the ability to create a company’s product gets much harder. Also, pollution can go as far as negatively affecting a company’s reputation if they are known for damaging the environment. The last concern, government intervention can make it increasingly harder for a company to fulfill their goals as requirements get more stringent.
The technological environment is perhaps one of the fastest changing factors in the macroenvironment. This includes all developments from antibiotics and surgery to nuclear missiles and chemical weapons to automobiles and credit cards. As these markets develop it can create new markets and new uses for products. It also requires a company to stay ahead of others and update their own technology as it becomes outdated. They must stay informed of trends so they can be part of the next big thing, rather than becoming outdated and suffering the consequences financially.
The political environment includes all laws, government agencies, and groups that influence or limit other organizations and individuals within a society. It is important for marketers to be aware of these restrictions as they can be complex. Some products are regulated by both state and federal laws. There are even restrictions for some products as to who the target market may be, for example, cigarettes should not be marketed to younger children. There are also many restrictions on subliminal messages and monopolies. As laws and regulations change often, this is a very important aspect for a marketer to monitor.
The final aspect of the macroenvironment is the cultural environment, which consists of institutions and basic values and beliefs of a group of people. The values can also be further categorized into core beliefs, which passed on from generation to generation and very difficult to change, and secondary beliefs, which tend to be easier to influence. As a marketer, it is important to know the difference between the two and to focus your marketing campaign to reflect the values of a target audience.
When dealing with the marketing environment it is important for a company to become proactive. By doing so, they can create the kind of environment that they will prosper in and can become more efficient by marketing in areas with the greatest customer potential. It is important to place equal emphasis on both the macro and microenvironment and to react accordingly to changes within them.[1]
Reference
- Kotler, Phillip and Gary Armstrong(2006), Principles of Marketing (Version 12/E). Pearson Education Inc. New Jersey
External resources
- http://what-is-marketing-environment/ Marketing Environment Article by Mohammad Monwer Hossain (MBA in Marketing)
- Assessing Industry Competitive Structure
- Improving government’s capability to handle risk and uncertainty
Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Prediction is a similar, but more general term. Both might refer to formal statistical methods employing time series, cross-sectional or longitudinal data, or alternatively to less formal judgemental methods. Usage can differ between areas of application: for example in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period. Risk and uncertainty are central to forecasting and prediction; it is generally considered good practice to indicate the degree of uncertainty attaching to forecasts. The process of climate change and increasing energy prices has led to the usage of Egain Forecasting of buildings. The method uses Forecasting to reduce the energy needed to heat the building, thus reducing the emission of greenhouse gases. Forecasting is used in the practice of Customer Demand Planning in every day business forecasting for manufacturing companies. The discipline of demand planning, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and a consensus process. An important, albeit often ignored aspect of forecasting, is the relationship it holds with planning. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like.[1] There is no single right forecasting method to use. Selection of a method should be based on your objectives and your conditions (data etc.).[2] A good place to find a method, is by visiting a selection tree. An example of a selection tree can be found here.[3]
- Forecasting Principles: "Evidence-based forecasting"
- Introduction to Time series Analysis (Engineering Statistics Handbook) - A practical guide to Time series analysis and forecasting
- Time Series Analysis
- Global Forecasting with IFs
- Earthquake Electromagnetic Precursor Research
Risk concerns the deviation of one or more results of one or more future events from their expected value. Technically, the value of those results may be positive or negative. However, general usage tends to focus only on potential harm that may arise from a future event, which may accrue either from incurring a cost ("downside risk") or by failing to attain some benefit ("upside risk").
- The Wiktionary definition of risk
- Risk - The entry of the Stanford Encyclopedia of Philosophy
- Risk Management magazine, a publication of the Risk and Insurance Management Society.
- The Institute of Risk Management (IRM) is risk management's leading international professional education and training body
- Risk and Insurance
- StrategicRISK, a risk management journal
- "Risk preference and religiosity" article from the Institute for the Biocultural Study of Religion
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Proactive Risk Management: Controlling Uncertainty in Product Development, by Preston G. Smith and Guy M. Merritt, Productivity Press, 2002 (June), 246 pages Check the availability and buy your books from our Bookshop. |
Business Decisions
Tutorials
- Game Theory and Oligopoly
- Pricing in Theory
- Pricing in Practice
- Non-Price Competition and the Marketing Mix
- Investment Decisions and the Cost of Capital
- Economics and the Analysis of Business Strategy
- Managerial Economics: The Information Sector and the Internet
Readings
Decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternatives. Every decision making process produces a final choice.[1] The output can be an action or an opinion of choice.
Economic Analysis for Business Decisions
EDM Lab Emotional and Decision Making Lab Carnegie Mellon.
The de Borda Institute – Emerson, P J. Beyond the Tyranny of the Majority, a comparison of the more common voting procedures used in both decision making and elections.
Decision Analysis in Health Care – An online course from George Mason University providing free lectures and tools for decision making in health care.
Infrastructure Risk Research Project at The University of British Columbia, Vancouver, Canada
In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.
In modern economies, prices are generally expressed in units of some form of currency. (For commodities, they are expressed as currency per unit weight of the commodity, eg euros per kilogram.) Although prices could be quoted as quantities of other goods or services this sort of barter exchange is rarely seen. Prices are sometimes quoted in terms of vouchers such as trading stamps and air miles. In some circumstances, cigarettes have been used as currency, for example in prisons, in times of hyperinflation, and in some places during World War 2. In the black economy, barter is also relatively common.
In many financial transactions, it is customary to quote prices in other ways. The most obvious example is in pricing a loan, when the cost will be expressed as the percentage rate of interest. The total amount of interest payable depends upon the loan amount and the period of the loan. Other examples can be found in pricing financial derivatives and other financial assets. For instance the price of inflation-linked government securities in several countries is quoted as the actual price divided by a factor representing inflation since the security was issued.
Price sometimes refers to the quantity of payment requested by a seller of goods or services, rather than the eventual payment amount. This requested amount is often called the asking price or selling price, while the actual payment may be called the transaction price or traded price. Likewise, the bid price or buying price is the quantity of payment offered by a buyer of goods or services, although this meaning is more common in asset or financial markets than in consumer markets.
- Definition
- Economic Definition
- Price Theory
- Price and Value
- Austrian theory
- Price as productive human labour time
- Confusion between prices and costs of production
- Price Point
- Cost of Living - Contains prices of goods and services worldwide
- Wages, Prices & Living Standards: The World-Historical Perspective
- Historicalstatistics.org Links to historical statistics on prices
- Price converter and calculator - Converting price between different currencies and calculating price in various measurements.
Public Policy
Lectures and Tutorials
Readings
Public policy can be generally defined as the course of action (or inaction) taken by the state with regard to a particular issue.[1] Other scholars define it as a system of "courses of action, regulatory measures, laws, and funding priorities concerning a given topic promulgated by a governmental entity or its representatives."[2] Public policy is commonly embodied "in constitutions, legislative acts, and judicial decisions." [3]
In the United States, this concept refers not only to the end result of policies, but more broadly to the decision-making and analysis of governmental decisions. As an academic discipline, public policy is studied by professors and students at public policy schools of major universities throughout the country. The American (United States of America) professional association of public policy practitioners, researchers, scholars, and students is the Association for Public Policy Analysis and Management.
Association for Public Policy Analysis and Management
National Association of Schools of Public Affairs and Administration
Harris School of Public Policy
Competition law, known in the United States as antitrust law, are laws that promote or maintain market competition by regulating anti-competitive conduct.[1]
There is considerable controversy among WTO members, in green, whether competition law should
form part of the agreements
The history of competition law reaches back to the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the 20th century, competition law has become global. The two largest and most influential systems of competition regulation are United States antitrust law and European Union competition law. National and regional competition authorities across the world have formed international support and enforcement networks.
Modern competition law has historically evolved on a country level to promote and maintain competition in markets principally within the territorial boundaries of nation-states. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level.[1]
The protection of international competition is governed by international competition agreements. In 1945, during the negotiations preceding the adoption of the General Agreement on Tariffs and Trade (GATT) in 1947, limited international competition obligations were proposed within the Charter for an International Trade Organisation. These obligations were not included in GATT, but in 1994, with the conclusion of the Uruguay Round of GATT Multilateral Negotiations, the World Trade Organization (WTO) was created. The Agreement Establishing the WTO included a range of limited provisions on various cross-border competition issues on a sector specific basis.[2]
- Thurman Arnold
- Competition policy
- Consumer protection
- European Community competition law
- The History of the Standard Oil Company (book)
- Irish Competition law
- List of countries' copyright length
- Relevant market
- Resale price maintenance
- SSNIP
- Notes
- References
- Further reading
Domestic
Criticism
Recommended Text
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Productivity
Measurement in Regulated Industries (Economic Theory,
Econometrics, and Mathematical Economics)
by Thomas G. Cowing ISBN:
0121940802 Check the availability and buy your books from our Bookshop. |
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Managerial
Economics: An Analysis of Business Issues, Check the availability and buy your books from our Bookshop. |
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Managerial
Economics: Applications, Strategy, and Tactics 9th Edition by
Check the availability and buy your books from our Bookshop. |
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Managerial Economics, 9th Edition Christopher R. Thomas, University of South Florida Check the availability and buy your books from our Bookshop. |
Resources
