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Introduction
Chapter One
The study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources
Chapter One
The science of organizing and allocating a firms scarce resources to achieve its desired objectives
Chapter One
The use of economic analysis to make business decisions involving the best use (allocation) of an organizations scarce resources
Chapter One
Finance: capital budgeting, breakeven analysis, opportunity cost, value added Management science: linear programming, regression analysis, forecasting
Chapter One Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall. 5
Relationship to other business disciplines Strategy: types of competition, structure-conduct-performance analysis Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost
Chapter One
What are the economic conditions in our particular market? market structure? supply and demand? technology?
Chapter One
What are the economic conditions in our particular market? government regulations? international dimensions? future conditions? macroeconomic factors?
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Chapter One
Should our firm be in this business? if so, at what price? and at what output level?
Chapter One
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
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
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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Economics of a business
The economics of a business refers to the key factors that affect the firms 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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Economics of a business
Stage I (the good old days) market dominance high profit margin cost plus pricing
Economics of a business
re-engineering to deal with changes and move firm into Stage III ..
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Economics of a business
Stage III (reform) revenue management cost cutting has limited benefit focus on top-line growth ..
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Economics of a business
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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
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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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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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
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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Resources are inputs (factors) of production, notably: land labor capital entrepreneurship
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Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people Opportunity cost is the amount (or subjective value) that must be sacrificed in choosing one activity over the next best alternative
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Chapter One
Allocation decisions must be made because of scarcity. Three choices: What should be produced? How should it be produced? For whom should be produced?
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What - begin or stop providing goods/services (production) How - hiring, staffing, capital budgeting (resourcing) For whom target the customers most likely to purchase (marketing)
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Entrepreneurship is the willingness to take certain risks in the pursuit of goals Management is the ability to organize resources and administer tasks to achieve objectives
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Global application
began over 100 years ago huge changes in technology to survive, the company branched out
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Global application
Example: VNU
Dutch publishing company transformed itself into a global provider of marketing and media information
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