Welcome To Economics 515 The Price System and Resource Allocation Instructor: Munir Mahmud Office: LH 703 Phone: (714)278-5847 E-mail: mmahmud@fullerton.edu Office Hours: Mon 5-7 p.m. & By Appointments

All of you should have a personal e-mail account and you are required to send me an e-mail from that account within the first week of classes. The Subject Heading of the e-mail should be just “Econ 515”. In the Message Area you should mention your “Name” and “Student I.D” My e-mail address is mmahmud@fullerton.edu

Web Address: http://calstate.fullerton.edu/munir/econ515.html

Managerial Economics: Definition: It is the application of the tools of economic theory and decision sciences to see how a firm or organization can achieve its aims and objectives most efficiently.

Management Economic Theory Decision Sciences Managerial Economics a. Microeconomics b. Macroeconomics a. Mathematical Economics b. Econometrics Managerial Economics Optimal Solutions

Q = f ( P, Y, Pc , Ps ) Q = a + b1 P + b2 Y + b3 Pc + b4 Ps

Theory of the Firm Firm: It is an organization or entity that combines and organizes resources for the purpose of producing goods and services for sale. Proprietorship Partnership Corporation

Objective of the Firm: Value of the Firm: Profit Maximization It is the present value of a the firm’s expected future net cash flows

Year One Year Two $100 $100 Interest Rate = 5 % $100 today $105 in a year

So one dollar a year from now has a present value of 1 2 3 4 p1 p2 p3 p4

Project 1: $100, $20, $10 Project 2: $40, $50, $60 Discount rate = 2%

Value of the Firm

Distinction between Accounting & Economic Profit: Total Profit = TR - TC Accounting Profit = TR - Explicit Costs Economic Profit = Accounting Profit - Implicit Costs = TR - Explicit Costs - Implicit Costs