LECTURE ONE: INTRODUCTION
IMBA NCCU
Managerial Economics
Lecturer: Jack Wu
DEFINING MANAGERIAL ECONOMICS
Managerial economics: Science of directing
scarce resources to manage more effectively
 resources – financial, human, physical
 management of customers, suppliers, competitors,
internal organization
 organizations – business, nonprofit, household
SCOPE OF MANAGERIAL ECONOMICS
Managerial econ is based on microeconomics.
 Microeconomics



Microeconomics is the study of how individual
households and firms make decisions and how they
interact with one another in markets.
Macroeconomics

Macroeconomics is the study of the economy as a
whole.
EXAMPLE: INCREASE IN OIL PRICE
Micro effect: vehicle users, electronic power
generators
 Macro effect: inflation, unemployment

NEW ECONOMY: INTERNET
Managerial Economics also applies to the new
economy.
 Example: In pricing, Airlines use online auctions
to segment their market between business and
leisure travelers.

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OLD/NEW ECONOMY
Differences between “New” and “Old” economy:
(1) role of network effects in demand
**network effects – benefit/cost depends on total
number of other users
example: Internet

(2) importance of economies of scale and scope
example: Information in Yahoo is scalable
METHODOLOGY
economic model – concise description of behavior
and outcomes
 marginal vis-à-vis average
 stock vis-à-vis flow
 other things equal (Ceteris Paribus)
 Timing

static model – single point in time
 dynamic model – focus on sequence of actions and
payments

ORGANIZATION
Vertical boundaries – closer to or further from
end user
 Samsung Electronics – vertical boundaries longer
than

Intel – specializes in semiconductors (upstream)
 Motorola – specializes in mobile phones
(downstream)

ORGANIZATION
Horizontal boundaries – scale and scope of
activities
 Samsung Electronics – horizontal boundaries
broader than

LG.Philips LCD – specializes in LCD
 Motorola – specializes in mobile phones

MARKET
Market: Buyers and sellers communicate with
one another for voluntary exchange
 market need not be physical
 industry -- businesses engaged in the production
or delivery of the same or similar items

MARKET: CONTINUED
Competitive Markets
 Market Power
 Imperfect Markets

COMPETITIVE MARKET

Benchmark for managerial economics

Extremely competitive market
many buyers and many sellers
 no room for managerial strategizing


Achieves economic efficiency
COMPETITIVE MARKET

Model:
demand
 supply
 market equilibrium

MARKET POWER
Definition – ability of a buyer or seller to
influence market conditions
 Seller with market power must manage

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
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costs
pricing
advertising expenditure
R&D expenditure
strategy toward competitors
IMPERFECT MARKET

Definition: where
one party directly conveys a benefit or cost to others
(Externality),
 or
 one party has better information than others
(Asymmetric Information)
