Managerial Economics Managers + Profit = Invest and Maximize Nature of Managerial Economics and the Theory of the firm MANRECO is a DECISION SCIENCE not a BUSINESS SCIENCE! Decision Science – based on the real situations of the business. SCOPE OF MANAGERIAL ECONOMICS Demand Analysis and Forecasting - Looking into the demand in the market. Pricing Decisions, Policies and Practices - Where the Government intervene. - Depends on the Owner. - Should be Balanced. - State of the Environment. Production and Capital Management - Deciding to expand the Business. - Business is taking the Risk. Notes: RIGHT DECISION MAKING = RIGHT INFORMATION – using your senses. Role of Managerial Economics to the Accounting Profession ¤ Careful analysis of the market behavior, global trading, socio-politico-economic issues, and government policies. ¤ Efficient allocation of firm’s resources ¤ Sets direction in its financial operation and come up with rational decisions. Accounting = Efficient Allocation of Resources Note: When problem arises, Monitor and Define the Problem First. Profit in Business Economic Incentive – the contribution of your business in the community. - From the recognition of the Government. Types of Incentives ¤ Monetary ¤ Tangible – holding titles ¤ Intangible Objective of Business – use of your business, “What for” id your business. Strategic Direction and Expanding its Operation – retain the business or take the risk of expanding then business. - Feasibility Study (the analysis done) Profits = aiming the Revenue and not Rate. Rate – not looking into how many businesses they have. Additional Notes: Royalty Business – using the name and paying the name. Franchising Business – 60%/40% split Theory of the Firm - determine pricing and demand within the market and allocate resources to maximize net profits. - the model of profit maximization Note: Beginning Revenue = Price Drill: Theory of the Firm: Simplified! - A business exists and make decisions to maximize profits. HOW BUSINESSES TEND TO MAXIMIZE PROFITS? - A firm maximizes profits by creating a gap between revenue and costs. - Having higher gap between cast and price revenue. 3 Principles of the Theory of the Firm Resource Allocation - Substituting to the cheapest price of an ingredients. Production Technique – human and automated. - Human – employers give compensation to the employee. Automated – way faster, more income generated. Stakeholder Theory vs Shareholder Theory Stakeholders – invested interest in the success of the organization or project. - Shareholders – are partial owners of the organization or project and focused on ROI. - Note: All shareholders are stakeholder, but not all stakeholders are shareholders - Drill: Satisficing Behavior - decision-making strategy that aims for satisfactory or adequate result, rather than the optimal solution. Optimal Solution – solid but not enough. - satisfaction with less expense. Adequate Result – enough & contented Hold units of shares in a company. ROI – Return of Investment - Pricing Adjustments - Changes in pricing can enhance every aspect of your business, and as aspects of your business change so should your pricing. Those affected of the business’ activities and hold a stake in the company. Shareholders primarily focus on a company’s profitability and share price. Stakeholders generally care about a company’s overall health. Shareholders’ interest in a company can cease the minute they no longer own shares. Stakeholders, on the other hand, typically have a more long-term interest in a company because their ties are more complex and not broken as easily. - to produce revolutionary solutions for the businesses and firms. - to prosper provide satisfactory services to the consumers. Ex. Technological Shifts in Business Types of Managerial Economics - Customers’ satisfaction can be the priority while some may focus on efficient production. This leads us to different types of managerial economics. Liberal Managerialism - Market is a free and democratic place in terms of decision making. - Customers get a lot many options to choose from. - Companies must modify their strategies according to consumers’ demands and market trends. If not done so, it may result in business failures. Ex. Corporate to Personal Branding Normative Managerialism - means that the decisions taken by the administration of the government would be normal, based on real-life experiences and practices. Ex. Human Resource Capacity Building Radical Managerialism Drill: - ¤ ¤ the cost of those options which we let go of while selecting the most appropriate one. - Playing vs Studying Rational People think at the Margin - When we make choices from the various options available and before investing the capital or resource we look at the profit margin we would make in the investment. - “Which needs to be fulfilled first?” People respond to incentives - human nature to look for something extra while purchasing something. 2. How People Interact ¤ ¤ ¤ Trade can make anyone better off - trade is a medium to exchange services and products. Markets = Economic Activity - Market is a place where buyers and sellers interact with each other. - Buy and sell Government can better the market - Government intervenes in business operations whenever there are unfavorable market conditions. 3. How Economy Works as a Whole ¤ ¤ ¤ Drill: Principles in Managerial Economics 1. How People Makes Decision ¤ ¤ People face trade offs - people must make choices among the various options available. - Aiming for cheaper options Opportunity Costs Standard of Living depends on the Goods and Services produced. - The role of organizations alongside geographic locations will play in the economic growth of a country and is one of the major factors, so, the organizations in the place must be capable enough to produce goods and services for the population. Prices rises when government prints too much money. - If there is surplus money available with people, their spending capacity increases, ultimately leading to a rise in demand. - Hyperinflation Society Faces a short-run Tradeoff between Inflation and Unemployment - Government bring-in policies to tackle the problem of unemployment and boost the economy in the short run as well. This further leads to inflation. - An equilibrium price (also known as a “marketclearing” price) is one at which each producer can sell all he wants to produce and each consumer can buy all he demands. - As the price of a good goes up, consumers demand less of it and more supply enters the market. - If the price is too high, the supply will be greater than demand, and producers will be stuck with the excess. - As the price of a good goes down, consumers demand more of it and less supply enters the market. - If the price is too low, demand will exceed supply, and some consumers will be unable to obtain as much as they would like at that price. The Practice: Oil Price Hike Classical Economics - market economies are, by definition, self-regulating systems that are ruled by the laws of production and exchange. - EXCHANGE BETWEEN GOODS AND SERVICES FROM ONE PERSON TO THE OTHER AND MUST BE UNRESTRICTED! The Practice: Barter System and Buy/Sell Scheme Keynesian Economics - variety of factors, both public and private, determine it. - argues that demand drives supply and that healthy economies spend or invest more than they save. - if we provide commodities make sure that it can be utilized and useful for the people. - depends on the situation. The Practice: The people and pandemic Malthusian Economics - while population growth may be exponential, the growth of goods and services supply and the supply of other resources is linear. - People who exploits this commodity will either use it or just acquire it. The Practice: More Population = More Food Production Marxism Economics - a capitalist society comprises two socioeconomic classes—the bourgeoisie, or the ruling class, and the proletariat, or the working class. The Practice: By any means EQUAL. ECONOMIC THEORIES: BEING PUT INTO PRACTICE - sets of ideas and principles that outlines how different economics function Laissez-Faire - This theory states that economic prosperity is more obtainable in systems that governments "leave alone". - The Government let an entity to gain profit, and not interfering. Supply and Demand The Practice: Selling Ballot and Pinoy & Stalls Market Socialism - proposes the creation of an economic system that incorporates elements from both socialist planning and free enterprise. - creating a cooperative and up for consultation. The Practice: The Philippine Transport System “Mga TODA”. Tragedy of the Commons - individuals who have unrestricted access to a resource are likely to act within their own self-interest and, through collective action, may deplete the resource in its entirety. - people excessive buying an important commodity The Practice: “Dzae waray na Paracetamol” New Growth Theory - is the assumption that competition flattens profit and - forces people to seek better, more efficient methods of doing things to maximize their potential to earn profit. The Practice: ex. New Technology Moral Hazard Theory - a party makes the previously described decision to enjoy the highest level of benefit without moral considerations. The Practice: Coca-cola and World War II Drill: Management Theories: The Practice in Workplace and Business Four Popular Management Theories Scientific Management Systems Management Contingency Management Theory of X and Y Scientific Management Theory - Fred Taylor’s - emphasized the fact that forcing people to work hard wasn’t the best way to optimize results. - Taylor recommended simplifying tasks so as to increase productivity. - money was the key incentive for working, which is why he developed the “fair day’s wages for a fair day’s work” concept. Worker Benefits and Statutory Allowances ¤ ¤ ¤ Salaries Employment Benefits Stipends and Allowances Systems Management Theory - businesses, like the human body, consists of multiple components that work harmoniously so that the larger system can function optimally. - the Organizational Structure Contingency Management Theory - no management approach suits every organization. Three Variables that Influences the Organization’s Structure: ¤ ¤ Size of an organization Technology being employed and style of leadership. - Job Mismatch Theory X and Theory Y - Theory X holds a pessimistic view of employees in the sense that they cannot work in the absence of incentives. - Theory Y, on the other hand, holds an optimistic opinion of employees that in return their hardwork will be recognized. - Job Promotion: A blessing and a curse Drill: Teacher: Gid Chris Malenab Section Code: 273 Subject: Managerial Economics Final Examination: August 19, 2022 @ 9:00 – 10:00 a.m.
