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Decision-Making in Economics and Business Management

Learn how economics influences managerial decisions, risks, and firm strategies. Understand key economic terms and business dynamics for optimal outcomes.

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Decision-Making in Economics and Business Management

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  1. Chapter 1 Introduction Lecturer: Kem Reat Viseth, PhD (Economics)

  2. Introduction • Economics and Managerial Decision Making • The Economics of a Business • Review of Economic Terms

  3. Economics and Managerial Decision Making • Economics is “the study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources.” (McConnell, 1993)

  4. Economics and Managerial Decision Making • Management is the discipline of organizing and allocating a firm’s scarce resources to achieve its desired objectives.

  5. Economics and Managerial Decision Making • Managerial economics is the use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources.

  6. Economics and Managerial Decision Making • Questions that managers must answer: • What are the economic conditions in a particular market? • Market Structure? • Supply and Demand Conditions? • Technology? • Government Regulations? • International Dimensions? • Future Conditions? • Macroeconomic Factors?

  7. Economics and Managerial Decision Making • Questions that managers must answer: • Should our firm be in this business? • If so, what price and output levels achieve our goals?

  8. Economics and Managerial Decision Making • Questions that managers must answer: • How can we maintain a competitive advantage over our competitors? • Cost-leader? • Product Differentiation? • Market Niche? • Outsourcing, alliances, mergers, • acquisitions? • International Dimensions?

  9. Economics and Managerial Decision Making • Questions that managers must answer: • What are the risks involved? • Risk is the chance or possibility that actual future outcomes will differ from those expected today.

  10. Economics and Managerial Decision Making • Types of risk • Changes in demand and supply conditions • Technological changes and the effect of competition • Changes in interest rates and inflation rates

  11. Economics and Managerial Decision Making • Types of risk • Exchange rates for companies engaged in international trade • Political risk for companies with foreign operations

  12. The Economics of a Business • The economics of a business refers to the key factors that affect the ability of a firm to earn an acceptable rate of return on its owners’ investment. • The most important of these factors are • competition • technology • customers

  13. The Economics of a Business • Four Stage Model of Change • Stage I • “the good old days” • high profit margins • cost plus

  14. The Economics of a Business • Four Stage Model of Change • Stage II • cost management • cost cutting, downsizing, restructuring

  15. The Economics of a Business • Four Stage Model of Change • Stage III • limits to the growth in profits • revenue management • “top-line growth”

  16. The Economics of a Business • Four Stage Model of Change • Stage IV • revenue plus

  17. Review of Economic Terms • Microeconomics is the study of individual consumers and producers in specific markets. • supply and demand • pricing of output • production processes • cost structure • distribution

  18. Review of Economic Terms • Macroeconomics is the study of the aggregate economy. • national income analysis • gross domestic product • unemployment • inflation • fiscal policy • monetary policy

  19. Review of Economic Terms • Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people.

  20. Review of Economic Terms • Opportunity cost is the amount or subjective value that must be sacrificed in choosing one activity over the next-best alternative.

  21. Review of Economic Terms • Because of scarcity, an allocation decision must be made. The allocation decision of a society is comprised of three separate choices:

  22. Review of Economic Terms • What and how many goods and services should be produced?

  23. Review of Economic Terms • How should these goods and services be produced?

  24. Review of Economic Terms • For whom should these goods and services be produced?

  25. Review of Economic Terms • For the firm, these allocation choices can be restated as follows:

  26. Review of Economic Terms • What : The product decision.

  27. Review of Economic Terms • How : The hiring, staffing, procurement, and capital budgeting decisions.

  28. Review of Economic Terms • For whom : The market segmentation decision.

  29. Review of Economic Terms • Resources • Factors of production or inputs • Land, labor, capital, entrepreneurship

  30. Review of Economic Terms • Entrepreneurship is the willingness to take certain risks in the pursuit of goals.

  31. Review of Economic Terms • Management is the ability to organize and administer various tasks in pursuit of certain objectives.

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