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8/11/2019 Topic1-Managers and Economics(May2014)
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THEME FOR ECONOMIC ANALYSISFOR MANAGERS
ECONOMIC EFFICIENCY
FOR ENSURINGCOMPETITIVENESS
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WHAT DO MANAGERS DO?
DEVELOP POLICIES & GOALS FORORGANIZATION
DEVELOP STRATEGIES FORACHIEVING GOALS
ACQUIRE NECESSARY RESOURCES
ORGANISE AND DIRECT THESERESOURCES
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HOW DOES ECONOMICS ANALYSIS FITS
IN FOR MANAGERS?ECONOMICS ANALYSIS PROVIDES AMACRO/MICRO VIEW OF HOW BEST
RESOURCES ARE USED.
THIS WOULD MEAN LOOKING AT THECOST AND ALLOCATIVE EFFICIENCYOFUSING RESOURCES.
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LEVEL OF ANALYSIS
Business
Functional
Areas
Microecon.
concepts
Macroecon. concepts
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MAIN CONCEPTS AND ANALYSIS INECONOMICS
MARGINAL ANALYSIS
OPTIMIZATION
EQUILIBRIUM
VALUE (Values of exchange) andOPPORTUNITY COST
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TOOLS USED IN ECONOMICS
ANALYIS MATHEMATICAL FUNCTIONS (numeric)
eg Qd= 200- 4.5Px+ 2.06Ax
GRAPHICAL ILLUSTRATION (Graphic)y
X
y1
x1
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MATHEMATICAL FUNCTIONS
Provides an expression of a relationshipbetween dependent variable (y) and
independent variables (x1; x2; x3) For example,
y = f (x1; x2; x3)
Qd
= f ( Price ; Advertising expenditure;Income)
Qd= 220 2.25P + 0.45Adv+ 0.06Inc
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APPLICATION OF MARGINAL ANALYSIS
Marginal values, for example, marginal revenue,marginal cost, marginal productivity of labor, marginalpropensity to consume etc are very much applied ineconomic analysis for decision making.
Marginal cost and marginal revenue are expressed asfollows:MC = TC/QMR = TR/Q
Thus, Output at max. profit is when MR=MC, i.e.
TC/ Q = TR/Q Output at max. revenue is when MR= 0, i.e.
TR/Q = 0
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APPLICATION OF MARGINAL ANALYSIS
Note:Managers need to remember, maximizingrevenue does not necessarily means getting
maximum profit.
It is only true, if MR is constant (price is fixedat all levels of output) and when MC is alsoconstant(there is no diminishing productivity inthe use of inputs).
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DERIVATIVES AND DIFFERENTIATIONFOR MARGINAL ANALYSIS
Example,
The process of finding thederivatives y/x froma function:
- linear function
- quadratic function- cubic function
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DERIVATIVES AND DIFFERENTIATIONFOR MARGINAL ANALYSIS
Derivatives are used to find theeffect of a very small change of
independent variable (x) on thedependent variable (y),expressed as y/x
The process of finding thederivatives is known asdifferentiation.
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