L ECTURE O NE IMBA NCCU Managerial Economics Lecturer: Jack Wu

C HAPTER 1 Introduction

M ANAGERIAL E CONOMICS 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

M ANAGERIAL E CONOMICS : C ONTINUED 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.

M ETHODOLOGY economic model – concise description of behavior and outcomes marginal vis- à -vis average stock vis- à -vis flow static vis- à -vis dynamic other things equal

O RGANIZATIONAL B OUNDARIES Vertical boundaries delineate activities closer to or further from the end user Horizontal boundaries define the scale and scope of an organization’s operations

E XAMPLE OF VERTICAL BOUNDARIES : INTERNET vertical chain: provision of content, internet access, telephone or cable service Case: America Online merged with Time Warner => become a provider of entire vertical chain Case: Google provides internet content, but neither telephone or cable service

E XAMPLE OF H ORIZONTAL BOUNDARIES : SALE OF PERSONAL COMPUTER Scale: the rate of production Scope: the range of different items produced In terms of scale: HP and Lenovo have wider horizontal boundaries than small businesses producing generic machines. In terms of scope: HP has wider horizontal boundaries than Lenovo

M ARKET 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

M ARKET : CONTINUED Competitive Markets Market Power Imperfect Markets

T HE FIRM ’ S GOAL : PROFIT MAXIMIZATION The firm’s profit analysis is based on: _ customers _ suppliers _ competitors _ government _ uncertainty _ internal organization management

C USTOMERS AND S UPPLIERS Customers _ demand analysis and forecasting Suppliers: _ cost analysis _ supply analysis

C OMPETITORS AND G OVERNMENT Competitors: _competitive analysis and market structure _ economic efficiency _pricing policy _strategic thinking Government: _ externality and public goods _ regulation

D ECISION M AKING UNDER U NCERTAINTY Asymmetric information _ adverse selection _ moral hazard

I NTERNAL O RGANIZATION Incentive Schemes Organizational Architecture

O LD /N EW E CONOMY Differences between “ New ” and “ Old ” economy: _ role of network effects in demand **network effects – benefit/cost depends on total number of other users example: Internt _ importance of economies of scale and scope example: Information in Yahoo is scalable