'Managerial Economics Essay\r'

'Chapter 1: introduction to conductrial Eco noics\r\n4. Describe the splendor of the â€Å"other things tinct” assumption in managerial economical analysis.\r\n5. Describe what constitutes a grocery, distinguish agonistical from non-competitive grocery stores, and discuss imperfect markets.\r\n6. Emphasize the globalization of markets.\r\nNOTES\r\n1. Definition. managerial political economy is the science of directing scarce resources to manage hail takeively.\r\n2. Application. Managerial political economy applies to:\r\n(a) Businesses (such as decisions in relation to customers including pricing and advertising; suppliers; competitors or the interior(a) workings of the organization), nonprofit organizations, and households.\r\n(b) The â€Å"old thrift” and â€Å" b be-ass economy” in essentially the kindred guidance except for devil distinctive aspects of the â€Å" tender economy”: the importance of ne devilrk effects and scale and eye s ocket economies.\r\ni. network effects in ingest †the hit provided by a ser debility depends on the positive number of other users, e.g., when and 1 mortal had email, she had no hotshot to pass along with, but with coke mm users on line, the prerequisite for Internet go mushroomed.\r\nii. scale and orbital cavity economies †scaleability is the degree to which scale and domain of a business digest be append without a corresponding subjoin in be, e.g., the schooling in Yahoo is eminently scaleable (the analogous development kindle serve 100 as intumesce as 100 mm users) and to serve a larger number of users, Yahoo needs only increase the capacity of its computers and links.\r\niii. Note: the term able technology (of the Internet) refers to the comparatively free admission of developers of capability and applications. (c) Both global and local markets.\r\n3. Scope.\r\n(a) Microeconomics †the study of several(prenominal) economic behavior where r esources be wooly, e.g., how consumers respond to miscellanys in footings and income, how businesses decide on employment and sales, voters’ behavior and consideration of tax policy.\r\n(b) Managerial economies †the application of microeconomics to managerial gists (a scope more(prenominal) modified than microeconomics).\r\n(c) Macroeconomics †the study of aggregate economic variables directly (as opposed to the aggregation of individual consumers and businesses), e.g., issues relating to involution and exchange rates, inflation, unemployment, import and export policies.\r\n2\r\nChapter 1: Introduction to Managerial Economics\r\n4. Methodology.\r\n(a) Fundamental stick in †economic behavior is systematic and therefore can\r\nbe studied. Systematic economic behavior heart and soul individuals share common motivations and be oblige systematically in making economic choices, i.e, a person who faces the same choices at two different times result behave in the same way both times.\r\n(b) Economic model †a concise comment of behavior and outcomes: i. focuses on particular issues and key variables (e.g., price, salary), omits extensive randomness, hence unrealistic at times;\r\nii. constructed by inductive reasoning;\r\niii. to be tested with confirmable data and revised as appropriate. 5. Basic concepts.\r\n(a) permissiveness vis a vis norm variables in managerial economics analyses. i. marginal pass judgment of a variable †the change in the variable associated with a unit increase in a driver, e.g., amount earned by working one more hour;\r\nii. norm value of a variable †the total value of the variable divided by the total standard of a driver, e.g., total pay divided by total no. of hours worked;\r\niii. driver †the independent variable, e.g., no. of hours worked; iv. the marginal value of a variable may be less(prenominal) that, equal to, or great than the average value, depending on whether the ma rginal value is decreasing, never-ending or increasing with respect to the driver; v. if the marginal value of a variable is greater than its average value, the average value increases, and vice versa.\r\n(b) Stocks and flows.\r\ni. melodic line †the measure at a specific point in time, measured in units of the dot, e.g., items on a sense of equilibrium sheet (assets and liabilities), the world’s oil militia in the beginning of a year;\r\nii. flow rate †the change in stock over close to period of time, measured in units per time period e.g., items on an income statement (receipts and expenses), the world’s real payoff of oil per solar day.\r\n(c) Holding other things equal †the assumption that all other relevant\r\n figures do not change, and is made so that changes due to the factor being studied may be examined singly of those other factors. Having analysed the effects of each factor, they can be put together for the complete picture. 6. O rganizational boundaries.\r\n(a) Organizations allow in businesses, non-profits and households. (b) upended boundaries †delineate activities nestled to or win from the end user. (c) Horizontal boundaries †relate to economies of scale (rate of achievement or delivery of a good or service) and scope (range of different items produced or delivered).\r\n3\r\nChapter 1: Introduction to Managerial Economics\r\n(d) Organizations which are members of the same pains may choose different perpendicular and horizontal boundaries.\r\n7. Competitive markets.\r\n(a) Markets.\r\ni. a market consists of buyers and sellers that communicate with one another for voluntary exchange. It is not limited by physical structure. ii. in markets for consumer intersection points, the buyers are households and sellers are businesses.\r\niii. in markets for industrial products, both buyers and sellers are businesses.\r\niv. in markets for human resources, buyers are businesses and sellers are hou seholds.\r\nv. Note: an industry is made up of businesses engaged in the production or delivery of the same or corresponding items.\r\n(b) Competitive markets.\r\ni. markets with many buyers and many sellers, where buyers provide the demand and sellers provide the supply, e.g., the silver market. ii. the demand-supply model †elementary starting signal point of managerial economics, the model describes the systematic effect of changes in prices and other\r\neconomic variables on buyers and sellers, and the fundamental interaction of these choices.\r\n(c) Non-competitive markets †a market in which market causality exists. 8. Market authority.\r\n(a) Market power †the ability of a buyer or seller to sour market conditions. A seller with market power allow for have the freedom to choose suppliers, set prices and allure demand.\r\n(b) Businesses with market power, whether buyers or sellers, still need to discover and manage their costs.\r\n(c) In addition to manag ing costs, sellers with market power need to manage their demand through price, advertising, and policy toward competitors. 9. Imperfect Market.\r\n(a) Imperfect market †where one party directly conveys a benefit or cost to others, or where one party has better information than others. (b) The challenge is to resolve the imperfection and be cost-effective. (c) Imperfections can also arise within an organization, and hence, another issue in managerial economics is how to structure incentives and organizations. 10. topical anaesthetic vis a vis global markets.\r\n(a) Local markets †owing to relatively high costs of conference and trade, some markets are local, e.g., housing, groceries. The price in one local market is independent of prices in other local markets.\r\n4\r\nChapter 1: Introduction to Managerial Economics\r\n(b) ball-shaped markets †owing to relatively low costs of conversation and trade, some markets are global, e.g., mining, shipping, financial servi ces. The price of an item with a global market in one place will move together with the pries elsewhere.\r\n(c) Whether a market is local or global, the same managerial economic principles apply.\r\n(d) Note: Falling costs of communication and trade are causing more markets to be more integrated across geographical knock against †enabling the opportunity to sell in new markets as well as global sourcing. outside sources may provide cheaper skilled labor, specialized resources, or superior quality, resulting in lower production costs and/or improved quality.\r\n helpS TO PROGRESS CHECKS\r\n1A. The managerial economics of the â€Å"new economy” is much the same as that of the â€Å"old economy” with two aspects being more important †network effects in demand and scale and scope economies.\r\n1B. Vertical boundaries delineate activities closer to or further from the end user. Horizontal boundaries narrow the scale and scope of operations. ANSWERS TO REVIEW QU ESTIONS\r\n1. Marketing over the Internet is a scaleable activity. Delivery through UPS is sensibly scaleable: UPS already incurs the fixed cost of an international assemblage and distribution network; it may be unforced to give Amazon bulk discounts for larger volumes of business.\r\n2. arrive of cars in service January 2002 + production + imports †exports †scrappage during 2002 = Number of cars in service January 2003. Number of cars in service is stock; other variables are flows.\r\n3. [omitted].\r\n4. No, models must be less than completely realistic to be useful. 5. (a) middling price per minute = (210 + 120 x 4)/5 = 138 hankering per minute. (b) Price of marginal minute = 120 yen.\r\n6. (a) descend; (b) Stock; (c) Stock.\r\n5\r\nChapter 1: Introduction to Managerial Economics\r\n7. (a) The electrical energy market includes buyers and sellers. (b) industry consists of sellers only.\r\nThe\r\nelectricity\r\n8. (a) False. (b) False.\r\n9. [omitted].\r\n10. If the re are scale economies, the organization could product at a lower cost on a larger scale, which means wider horizontal boundaries; and vice versa. 11. Yes. Horizontal boundaries: how many product categories should it sell? Vertical boundaries: should it operate its own warehouses and delivery service? 12. Intel has relatively more market power.\r\n13. (b).\r\n14. Both (a) and (b).\r\n15. Competitive markets have large numbers of buyers and sellers, none of which can solve market conditions. By contrast, a buyer or seller with market power can influence market conditions. A market is imperfect if one party directly conveys benefits or costs to others, or if one party has better information than another. WORKED ANSWER TO DISCUSSION QUESTION\r\nJupiter Car Rental offers two schemes for rental of a compact car. It charges $60 per day for an unlimited international mlage plan, and $40 per day for a time-and- graybackage plan with 100 free miles plus 20 cents a mile for mileage in se nseless of the free allowance. a. For a customer who plans to drive 50 miles, which is the cheaper plan. What are the average and marginal costs per mile of rental? (The marginal cost is the cost of an superfluous mile of usage.)\r\nb. For a customer who plans to drive one hundred fifty miles, which is the cheaper plan. What are the average and marginal costs per mile of rental?\r\nc. If Jupiter raises the basic charge for the time-and-mileage plan to $44 per day, how would that postulate the average and marginal costs for a customer who drives 50 miles?\r\n6\r\nChapter 1: Introduction to Managerial Economics\r\nAnswer\r\n(a) It is helpful to skeleton the total rental cost as a function of the mileage (see figure below). The breakeven between the two plans is at 200 miles per day. For 50 miles, the time-and-mileage plan is cheaper. Average cost = $40/50 = 80 cents per mile. peripheral cost = 0.\r\nTotal cost ($)\r\ntime-and-mileage plan\r\nunlimited mileage plan\r\n$60\r\n$40\r \n0\r\n100\r\n200\r\nQuantity (miles per day)\r\n(b) For the 150 mile customer, the time-and-mileage plan is still cheaper. Average cost = $(40 + 0.2 x 50)/150 = 33 cents per mile; marginal cost = 20 cents per mile.\r\n(c) After the increase in the basic charge, the average cost = $(44 + 0.2 x 50)/150 = 36 cents per mile, while marginal cost = 20 cents per mile. The increase in the basic charge doesn’t affect the marginal cost.\r\n7\r\n'