Economics ~ Introduction to Managerial Economics

24 Mar

Hello-our internet sucks, so I’m posting this for some of my students🙂 You’re welcome to enjoy it too!

What is Managerial Economics?

  • Economics (经济学)= The study of how resources (资源) are created (创造), gathered (搜集,聚集), traded (营业), and divided (分离,划分).
    • Resources = Anything you use to help the company work. Examples: time, money, land, tools, labor, raw materials.
      • Natural Resources (自然资源) = Resources created by nature. Examples: wood, water, air, rocks/stones, flowers, natural chemicals
      • Man-Made Resources (人造资源) = Resources created by humans by either combining (mixing together) or changing natural resources into something new. Examples: jewelry, paint, fabric, steel, hammers.
      • Limited Resources (限制性资源) = Resources either no longer being created or only created in small amounts. Meaning the supply is not enough.Examples: Gold, Diamonds, Water in a desert.
      • Unlimited Resources (无限制性资源) = Where there is a large amount of the resource or it is created fast enough to replace any that is lost. Supply is enough.Examples: Water, Air.
      • Raw Materials (原材料) = The resources that are put into the product. Example: If we make a computer, raw materials would include wires, plastic, metal, paint, springs, etc.
      • Market-Supplied Resources (市场提供的资源) = Resources owned by someone outside of the company. Examples = Taxes, Utilities, Rent, Raw Materials, Wages
      • Owner-Supplied Resources (业主提供的资源) = Resources owned by the company’s owners.
  • Manager (经纪, 经理) = A person who is obligated to ensure the company (or department) is effectively organized and controlled.
  • Managerial Economics (管理经济学) = The study of the best method for managers to create, gather, trade, and divide the company’s resources.

Goal of Effective Managers 

  • Wealth or Profit (收益) Maximization Rule = #1 Goal of Effective Managers is to make the owner’s the most profit (as long as they do so ethically and legally)

How to Maximize Profits (收益)?

  • Profit = Revenue – Cost
  • Two ways to Maximize Profit:
    • Make the Highest Revenue
    • Pay the Lowest Costs

What are Revenue, Cost, and Profits?

  • Revenue (收入) = Total Income or Money the Company makes from its work.
  • Cost (成本)  = The losses or sacrifices the company makes in exchange for getting and using resources in its work. 
    • Opportunity Costs (机会成本) = The company’s costs created because it lost some opportunity. 
      • Opportunity Cost of using Market-Supplied Resources = $$ Spent paying for those resources (you lose the opportunity to spend the money on something else)
      • Opportunity Cost of using Owner-Supplied Resources = $$, time, effort lost that the owner would have had if they spent their resources on something else.
    • 2 Types of Opportunity Costs
      • Explicit Costs (明确的成本) = Any money the company pays owners of Market-Supplied Resources
      • Implicit Costs (隐性成本) = Anything the Owner loses by giving the company Owner-Supplied Resources
    • Total Economic Cost = Explicit Costs + Implicit Costs 
  • Profit (收益)  = Everything the company gets to keep from the Revenue after it pays its costs!
    • Present Profit v. Future Profit
      • Present Profit = What we are keeping right now. (Most Important)
      • Expected Future Profit = What we think we’ll get in the future (Companies with higher expected future profits have more value. While companies with a possibility of low future profits will have a lower value)
    • Profit is Counted in Two Ways
      • Example: Joshua has a company (Company A) that just made $150,000 in Revenue. The company spends $9,000 on Taxes and Utilities, $3,000 on Wages, and $5,000 on Raw Materials. Joshua gave the company the building but would have made $2,000 if he used it as a school instead. He also lost $5,000 on his original investment. 
      • Economic Profit (经济利润) = Revenue – Total Economic Cost
        • What is Company A’s Economic Profit?
      • Accounting Profit (会计利润) = Revenue – Explicit Costs.
        • What is Company A’s Accounting Profit?
      • In Managerial Economics, we usually mean Accounting Profit when we say “Profit”

More to come later🙂

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