Chapter 1: Resource Utilization

• Economics is the science that deals with the management of scarce resources in demand.
• Economics is simply scarcity and choice.- Slavin (2005)
• Efficiency and effectiveness are necessary in the study of managerial economics.
• Efficiency refers to productivity and the proper allocation of economic resources.
• Effectiveness means the attainment of goals and objectives.
• Opportunity cost refers to the forgone value of the next-best alternative. Value of what is given up when one makes a choice.
• Production is an economic activity that combines factors from land, labor, and capital.
• Entrepreneurship pertains to the skills, talent, and risk-taking behavior needed in building, operating, and expanding a business
• 2 major branches of economics: macroeconomics and microeconomics
• Microeconomics studies the decisions of individuals and firms to allocate resources for production, exchange, and consumption.
• Macroeconomics involves understanding the behavior of society as a whole.
• Ceteris Paribus means "all other things held constant or all else equal."
• 4 basic economic questions:

  1. What to produce?
  2. How to produce?
  3. How much to produce?
  4. For whom to produce?
• Managerial economics is the utilization of managerial skills in business by applying economic theories and concepts to maintain efficiency in costing and production and its effectiveness in every decision-making by firms to fully maximize their profits.
• Through these processes, it is expected that the maximization of profit will be achieved by the business/firm.

  • Utilization of managerial skills
  • Economic theories and concepts
  • Efficiency in cost and production
  • Effectiveness in decision-making
• "The pull-out component from microeconomic theory, concepts, and techniques that help every manager select strategic direction, to allocate efficiently the resources available and respond effectively to tactical issues." McGuigan, Moyer, & Harris (2008)
• "The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal." Baye (2010)
• "A discipline that helps decision-makers deal with the nature of the firm, how and why it is organized the way it is, in order to make a better, more efficient, and more highly rewarded executive." McCormick (1993)
• "The application of economic theory and the tools of analysis of decision science to examine how an organization can achieve its aims or objectives most efficiently." Salvatore (2004)
• "The branch of economics which deals with the application of the theories, tools, and findings of economic analysis to managerial decision making in all types of organizations, including government agencies, educational centers, not-for-profit foundations, and business enterprises." Villegas (1999)
• Mathematical Economics is used to formalize (express in equation form) the economic models postulated by economic theory to firmly identify proper solution to a managerial decision problem.
• Econometrics is used in managerial economics as a statistical tool (particularly regression analysis) to estimate real-world data and analyze the models postulated by economic theory.
• Principles of managerial economics

  • Marketing
  • Finance
  • Management Science
  • Strategic Management
  • Managerial Accounting
• Establishing a business

  Business -> Profit -> Consumption increase -> Satisfaction level increase
• A firm is a collection of resources that is transformed into products demanded by consumers. "Producing unit"