Escolar Documentos
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Howard Davies
and Pun-Lee Lam
Published by FT Prentice Hall
These Definitions Cover a Number of Different Approaches 1. Analysis based on the theory of the firm 2. Analysis based upon management sciences
Theoretical analysis
If predictions not supported by data, model is amended or discarded If predictions borne out by data, the model is valid, for the moment
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Predictions
It allows us to make predictions and set hypotheses The predictions can be tested against the empirical evidence The predictions are supported by the empirical evidence
Normative Economics:Provides the basis for value judgements on economic outcomes.WHAT SHOULD BE
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Managerial Economics
Economics in general takes a positive and predictive approach not prescriptive or normative
trying to explain what is not what should be the main objective is to understand how a market economy works
Not very concerned about the descriptive realism of assumptions: I assume X does not mean I believe X to be true Some real tension if the models are used for prescription
assume perfect knowledge: OK for model-building cannot say to a manager: behave AS IF you had perfect 11 knowledge
Economic Analysis
Comparative Statics
begin with an initial equilibrium position - the starting point change something identify the new equilibrium, e.g:in neo-classical model of the firm
When demand increases? When costs rise? When a fixed cost increases?
Normative prescriptions
it will cost me $30 per unit to supply something which will give me $20 per unit in revenue- should I do it? I must pay $20 billion to set up in my industry. Should I charge higher prices to get that money back?
Positive and Normative are linked by if? IF the aim of the firm is to maximise profit what will it do/what should it do?
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If the aim is to produce decision-rules which can be applied by practising managers, unrealistic assumptions will produce decision-rules which are not operational
for instance, set output and price by MC=MR
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How Can Managerial Economics Assist Decision-Making? 1. Adopt a general perspective, not a sample of one
2. Simple models provide stepping stone to more complexity and realism 3. Thinking logically has value itself and can expose sloppy thinking
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The basis for some of the more rigourous analysis of issues in Marketing and Strategic Management.
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Structure: attributes which give definition to the supply-side of the market, e.g. economies of scale, barriers to entry, industry concentration, product differentiation, vertical integration.
Conduct: the behavior of firms in the market, e.g. pricing behavior advertising, innovation. Performance: a judgement about the results of market behaviour, e.g. efficiency, profitability, fairness/income distribution, economic growth. How can the government improve the performance in an industry?
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Basic Conditions
Structure
Government Policy
Conduct
Performance
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Management science: is essentially concerned with techniques for the improvement of decision-making and hence it is essentially normative;firms are not assumed to find the optimal solutions for themselves. They are found by the researchers who then present them as prescriptions for what the firm should do.
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