MM 5006
BUSINESS ECONOMICS
DR.IR. SUBIAKTO SOEKARNO MBA, QWP™, CFP®
McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Lecturer Profile :
Subiakto Soekarno
• Undergraduate degree (Mech Eng)-ITB, Graduate
Degree/MBA from Oklahoma State University-USA. Doctoral
degree in Management from Univ of Padjadjaran.Trained in
University of Kentucky, UCLA, and University of Windsor,
Canada.
• Over 24 year working experience as executive in Strategic
Industry, Multinational, and as Entrepreneur as well.
• Over 10 year experience as Investor in BEI, BBJ, NYSE,
AMEX, CBOE, and property market. He has passed CFA
level 1, RFA, QWP, CFP.
• Office Hours : 14.00 – 17.00 daily @ MBA Gelap Nyawang
• Contact : Office-2531923 ; Mobile-081 221 203040
• 081 120 3116
[email protected] [email protected]
• Facebook, instagram, path
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Text Books
Compulsory Material:
• Salvatore, D., (2012), Managerial Economics in a Global
Economy, 5th or 6th or 7th Edition, Thomson South Western.
(SD)
• Colander,D.C., (2013), Economics,9th edition, McGrawHill
International
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Evaluation
• Exams – 60 %
• Class Participation – 20 %
• In Class Assignment – 20 %
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Class Rules
Standard :
Code of Conduct : Clothing, behavior, etc.
Lateness, Minimum Class Presence.
Academic dishonesty :
Copying, Recite, someone’s work without proper attributions. (it is very
serious allegation)
Turn off your HandPhone, BB, and Note Book, during the
class session.
Retaking of Exam, Quizzes etc is only given if and only if
students have very strong case (sickness with doctor’s
note, family matters, etc).
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Class Rules
• Retaking of Midterm and Final Exam, Quizzes etc is
only given if and only if students have very strong
case (sickness with doctor’s note, family matters,
etc).
McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Rules
• To provide an excellent learning environment for
everyone. Please try to be considerate of those
around you (in economic jargon, try not to create
“negative externalities”).
• Conversations between students in auditorium are
easier to hear and more distracting than commonly
realized.
• Always feel free to come to me with concerns about
the course. I am always willing to work with
students who have a serious personal situation.
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Let’s Start …………..
Group Formation
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Chapter 1
ECONOMICS
AND
ECONOMIC
REASONING
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1-10
Contents
• Scope of Managerial Economics
• Economic Problems
• Economic Reasoning : Marginal
Analysis, Opportunity Cost, Market
Forces
• Micro vs Macroeconomics
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PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Slide 11
Managerial Economics
Defined
• The application of economic theory and the tools
of decision science to examine how an
organization can achieve its aims or objectives
most efficiently.
applications of economic theory
quantitative methods
statistical methods
computational methods
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PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Slide 12
McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter One
Economics and managerial
decision making
• Managerial economics
The use of economic analysis to make
business decisions involving the best use
(allocation) of an organization’s scarce
resources
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Chapter One
Economics and managerial
decision making
• Relationship to other business
disciplines
Marketing: demand, price elasticity
Finance: capital budgeting, breakeven
analysis, opportunity cost, value added
Management science: linear
programming, regression analysis,
forecasting
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Chapter One
Economics and managerial
decision making
• Relationship to other business
disciplines
Strategy: types of competition,
structure-conduct-performance
Analysis
Managerial accounting: relevant
cost, breakeven analysis, incremental
cost analysis, opportunity cost
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Chapter One
Economics and managerial
decision making
• Questions that managers must
answer:
Should our firm be in this business?
if so, at what price?
and at what output level?
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Chapter One
Economics and managerial
decision making
• Questions that managers must
answer:
How can we maintain a competitive
advantage over other firms?
cost-leader?
product differentiation?
market niche?
outsourcing, alliances, mergers?
international perspective?
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Chapter One
Economics and managerial
decision making
• Questions that managers must
answer:
What are the risks involved?
shifts in demand/supply conditions?
technological changes?
the effect of competition?
changing interest rates and inflation
rates?
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Chapter One
Economics and managerial
decision making
• Questions that managers must answer:
What are the risks involved?
exchange rates (for companies in
international trade)?
political risk (for firms with foreign
operations)?
Risk is the chance that actual future
outcomes will differ from those expected
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Chapter One
Economics and managerial
decision making
• Questions that managers must
answer:
What are the economic conditions in
our particular market?
market structure?
supply and demand?
technology?
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Chapter One
Economics and managerial
decision making
• Questions that managers must
answer:
What are the economic conditions in
our particular market?
government regulations?
international dimensions?
future conditions?
macroeconomic factors?
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Economic Problems
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1-23
The Economic Problem
• Scarcity exists because individuals want
more than can be produced.
Scarcity – the goods available are too few
to satisfy individuals’ desires.
• The degree of scarcity is constantly
changing.
• The quantity of goods, services, and
usable resources depends on
technology and human action.
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Economic Reasoning
Marginal Analysis
Opportunity Cost
Market Forces
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1-25
Economic Reasoning
• Economic reasoning is making decisions
by comparing marginal costs and
marginal benefits.
• Marginal cost – the additional cost over
and above costs already incurred.
• Marginal benefit – the additional benefit
above and beyond what has already
accrued.
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1-26
The Economic
Decision Rule
• If the marginal benefits of doing
something exceed the marginal
costs, do it.
• If the marginal costs of doing
something exceed the marginal
benefits, don’t do it.
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1-27
Opportunity Cost
• Opportunity cost is the benefit forgone
of the next-best alternative to the activity
you have chosen.
• Opportunity cost is the basis of
cost/benefit economic reasoning.
• Opportunity cost is always less than the
benefit of what you have chosen.
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1-28
Examples of
Opportunity Costs
• Individual decisions
The opportunity cost of college includes
Items you could have purchased with the money
spent for tuition and books
loss of the income from a full-time job
• Government decisions
The opportunity cost of money spent on the
war on terrorism is less spending on health
care or education.
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1-29
Economics and
Market Forces
• When goods are scarce, they must
be rationed by some mechanism.
• Economic forces are the necessary
reactions to scarcity.
• A market force is an economic
circumstance that is given relatively
free rein by society to work through
the market.
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1-30
Economics and Market
Forces
• Economic reality is controlled by
three forces
Economic forces (the invisible hand)
Social and cultural forces
Political and legal forces
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1-31
Economics and Market
Forces
• Market forces ration by changing
prices.
• The invisible hand is the price
mechanism that guides markets.
• When there is a shortage, the price
increases.
• When there is a surplus, the price
decreases.
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1-32
Economics and Market
Forces
• What happens in society can be seen as a
reaction to, and interaction of, economic
forces, social forces, and historical
forces.
• Social, cultural, and political forces
influence market forces.
• Political and social forces often work
together against the invisible hand.
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1-33
The Invisible Hand Theory
• Price has a tendency to fall when the
quantity supplied is greater than the
quantity demanded.
• Price has a tendency to rise when
the quantity demanded is greater
than the quantity supplied.
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The Invisible Hand Theory
• According to the invisible hand
theory, a market economy, through
the price mechanism, will allocate
resources efficiently.
• Efficiency means achieving a goal as
cheaply as possible.
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Microeconomics
Vs
Macroeconomics
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Microeconomics and
Macroeconomics
• Economic theory is divided into two
parts: microeconomic theory and
macroeconomic theory.
• Microeconomics is the study of individual
choice, and how that choice is influenced
by economic forces.
• Macroeconomics is the study of the
economy as a whole.
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Microeconomics and
Macroeconomics
• Microeconomics studies such things as:
the pricing policy of firms.
households decisions on what to buy.
how markets allocate resources among alternative
ends.
• Macroeconomics deals with:
inflation.
unemployment.
economic growth.
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Economic Institutions
• Economic institutions – laws, common
practices, and organizations in a
society that affect the economy.
• They sometimes seem to operate
differently than economic theory
predicts.
• Economic institutions differ
significantly among nations.
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Economic Policies
• Economic policies are actions (or
inactions) taken be government to
influence economic actions.
• Objective policy analysis keeps value
judgments separate from the analysis.
• Subjective policy analysis reflects the
analyst’s view of how things should be.
McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter One
Economics of a business
• The economics of a business refers to the key
factors that affect the firm’s ability to earn an
acceptable rate of return on its owners’
investment
The most important of these factors are
competition
technology
customers
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Chapter One
Economics of a business
• Change: the four-stage model
Stage I (the ‘good old days’)
market dominance
high profit margin
cost plus pricing
… changes in technology, competition,
customers force firm into Stage II ..
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Chapter One
Economics of a business
• Change: the four-stage model
Stage II (crisis)
cost management
downsizing
restructuring
… ‘re-engineering’ to deal with
changes and move firm into Stage
III .. Copyright 2009 Pearson Education, Inc. 42
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Chapter One
Economics of a business
• Change: the four-stage model
Stage III (reform)
revenue management
cost cutting has limited benefit
… focus on ‘top-line’ growth ..
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Chapter One
Economics of a business
• Change: the four-stage model
Stage IV (recovery)
revenue plus
… revenue grows profitably
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Chapter One
Economics of a business
• Example: Avon
well established company, in stage I
until late 1970s
found itself in Stage II during 1980s
since mid 1990s, entered stage III
expanded into emerging markets and
updated its image
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Chapter One
Economics of a business
• Example: Sears, Kmart
Wal-Mart effect
Sears pushed down to number three
in late 1980s … repositioned itself as
a clothing store
Kmart filed for bankruptcy in 2002 …
plan to acquire Sears
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Chapter One
Economics of a business
• Example: Kodak
struggled to transition from
chemical-based film to digital
imaging
responded by developing strong
cash flows in new product range
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Chapter One
Review of economic terms
• Microeconomics is the study of
individual consumers and producers
in specific markets, especially:
supply and demand
pricing of output
production process
cost structure
distribution of income
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Chapter One
Review of economic terms
• Macroeconomics is the study of the
aggregate economy, especially:
national output (GDP)
unemployment
inflation
fiscal and monetary policies
trade and finance among nations
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Chapter One
Review of economic terms
• Resources are inputs (factors) of
production, notably:
land
labor
capital
entrepreneurship
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Chapter One
Global application
• Example: Western Union
began over 100 years ago
huge changes in technology
to survive, the company branched
out
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Chapter One
Global application
• Example: VNU
Dutch publishing company
transformed itself into a global
provider of marketing and media
information
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1-53
Review Exercise 1-1
Suppose that you are considering going to a concert. Tickets cost
$60. If you go to the concert, you will have to miss 4 hours of work,
where you are making $10 an hour. What is your total opportunity
cost of going to the concert measured in dollars given up?
The total opportunity cost of going to the concert is $100, $60 for
the ticket and $40 lost income from missing work.
Review Exercise 1-2
Suppose that after studying 7 hours for an economics test, you are
confident that you know enough to make a B. However, if you study
one more hour instead of watching your favorite TV show, you will
probably improve your grade to an A. Identify the marginal costs and
benefits in this situation.
The marginal benefit is the improvement in your grade from a B to an A.
The marginal cost is the hour of lost entertainment.
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