LECTURE ONE INTRODUCTION TO MANAGERIAL ECONOMICS Managerial Economics

MANAGERIAL ECONOMICS Managerial economics: Science of directing scarce resources to manage more effectively resources

NEW ECONOMY: INTERNET Managerial Economics also applies to the new economy. Example: In pricing,

OLD/NEW ECONOMY Differences between “New” and “Old” economy: _ role of network effects in

ORGANIZATION Vertical boundaries – closer to or further from end user Samsung Electronics –

ORGANIZATION Horizontal boundaries – scale and scope of activities Samsung Electronics – horizontal boundaries

MARKET Market: Buyers and sellers communicate with one another for voluntary exchange market need

MARKET: CONTINUED Competitive Markets Market Power Imperfect Markets

COMPETITIVE MARKET Benchmark for managerial economics Extremely competitive market many buyers and many sellers

COMPETITIVE MARKET Model: demand supply market equilibrium

MARKET POWER Definition – ability of a buyer or seller to influence market conditions

IMPERFECT MARKET Definition: where one party directly conveys a benefit or cost to others,

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LECTURE ONE: INTRODUCTION TO MANAGERIAL ECONOMICS Managerial Economics Lecturer: Jack Wu NCCU

MANAGERIAL ECONOMICS Managerial economics: Science of directing scarce resources to manage more effectively resources – financial, human, physical management of customers, suppliers, competitors, internal organizations – business, nonprofit, household Managerial economics is based on microeconomics.

NEW ECONOMY: INTERNET Managerial Economics also applies to the new economy. Example: In pricing, Airlines use online auctions to segment their market between business and leisure travelers.

OLD/NEW ECONOMY Differences between “New” and “Old” economy: _ role of network effects in demand **network effects – benefit/cost depends on total number of other users example: Internet

ORGANIZATION Vertical boundaries – closer to or further from end user Samsung Electronics – vertical boundaries longer than TSMC – specializes in semiconductors (upstream) HTC – specializes in mobile phones (downstream)

ORGANIZATION Horizontal boundaries – scale and scope of activities Samsung Electronics – horizontal boundaries broader than HTC – specializes in mobile phones

MARKET 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

MARKET: CONTINUED Competitive Markets Market Power Imperfect Markets

COMPETITIVE MARKET Benchmark for managerial economics Extremely competitive market many buyers and many sellers no room for managerial strategizing Achieves economic efficiency

COMPETITIVE MARKET Model: demand supply market equilibrium

MARKET POWER Definition – ability of a buyer or seller to influence market conditions Seller with market power must manage costs pricing advertising expenditure R&D expenditure strategy toward competitors

IMPERFECT MARKET Definition: where one party directly conveys a benefit or cost to others, or one party has better information than others