Chapter

Chapter11
The Nature
Scope
Karakteristik
& and
Ruang
Lingkup
of Managerial
Economics
Ekonomi Manajerial
The Scope of Managerial Economics
The Theory of the Firm
Function of Profits
Business Ethics
Internatl Framework & Managerial Economics
Appendix: The Basic of D, S, and Equilibrium
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The Nature of Managerial Economics

Management Decision Problems
Economic theory
Microeconomics
Macroeconomics

Decision Sciences
Mathematical Economics
Econometrics

EKONOMI
toMANAGERIAL
examine
howMANAJERIAL
anECONOMICS
organization
Application
economic
theory
Aplikasi
teoriorekonomi
can
achieve dari
itsofaims
objectives
and
science tools
to solve
dandecision
alat
pengambilan
keputusan
most
efficiently.
managerial
decisionmasalah
problems
utk memecahkan
keputusan manajerial
SOLUSI
OPTIMAL
UNTUK
OPTIMAL
SOLUTIONS
TO
MASALAH
KEPUTUSAN
MANAJERIAL
MANAGERIAL
DECISION
PROBLEMS
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Prof. DR. H. Nurzaman Bachtiar, MSc, DEA.

May 2010

MANAGERIAL ECONOMICS
(EKONOMI MANEJERIAL)

The application of economic theory and the

Penerapan
teori ilmu
ekonomiscience
dan alat-alat
tools
of analysis
of decision
to
analisa dari ilmu pengambilan keputusan
examine
how
an
organization
can
achieve
(decision science) untuk mengetahui
its
aims or objectives
most efficiently.
bagaimana
suatu organisasi
dapat mencapai
tujuannya secara lebih efisien.

Mathematical
Economics
Matematika Ekonomi
Quantity
demanded
Jumlah diminta:
Q Q

with
a model:
Q =Qf (P,
c, P
Pcs,) Ps)
Begin
Dimulai
dengan
model:
= f Y,
(P,PY,
P
s, substitute
Pcc,, complementary
komplementer; P; s,Psubstitusi

forecast
the future
demand
for the
commodity
+
to
Untuk
meramal
permintaan
masa
depan
dari barang
Econometrics
(regression analysis)
tertentu + Ekonometrika
(regression analysis)
Q
Q
Qdd =
= 400
400
250
250 P
P
Qss =
= -- 200
200 +
+ 500
500 P
P
Equilibrium:
Equilibrium: 400
400
250
250 P
P =
= -- 200
200 +
+ 500
500 P
P

P
P=
=$
$ 0.80;
0.80 Q = 200

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P
S
0,80

D
-200

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200

400

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5 langkah dalam membuat keputusan

5 steps in Managerial
Decision Making:
manajerial
1.
2.
3.
4.
5.

Establishing the objective of the firm or

organization
Defining the problem or obstacles that the firm or
organization faces in trying to achieve its objective
Identifying the range of possible solutions
Selecting the best solution available
Implementing that decision.

See: Case Application 1-1

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pp.6-7

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Theory of the Firm

A Firm is an organization:
Combines and organizes resources for the
purpose of producing goods and/or services
for sale. Proprietorships, firms owned by one individuals
Partnerships = owned by two or more individuals
Corporations = owned by stockholders

Internalizes all transactions (contracts): many

functions within the firm; Saves on sales tax
and avoids price control Reducing
transactions costs.
Maximizes the wealth or value of the firm.
p.8
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Teori Perusahaan
A Firm is an organization:
Menggabungkan dan mengorganisasikan
sumberdaya untuk tujuan memproduksi barang
atau jasa untuk dijual.
Proprietorships, firms owned by one individuals
Partnerships = owned by two or more individuals
Corporations = owned by stockholders

Menginternalisasikan berbagai transaksi

(contracts): berbagai fungsi dalam perusahaan
Menghemat pajak penjualan dan menghindari
kontrol harga Pengurangan biaya transaksi.
Memaksimumkan kekayaan atau value of the firm.
p.8
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Value
of
the
Firm
Nilai Perusahaan
The present value (PV) of all expected future profits (n)
n
1
2
n
t
PV

1
2
n
t
(1 r ) (1 r )
(1 r )
(1

r
)
t 1
n
t
TRt TCt
Value of Firm

t
t
(1

r
)
(1

r
)
t 1
t 1
n

TR = Total Revenue; TC = Total Costs

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DISCOUNTING & COMPOUNDING TABLE

DISCOUNT FACTOR i = 8%
How much $1.00 at a future date is worth today ?
PV

YEAR

0.925.926

0.857.339

0.793.832

0.735.030

0.680.583

0.630.170

0.583.490

0.540.269

0.500.249

0.463.193

10

Tahun 2 = 1 : (1.08)(1.08)
= 1 : (1.1664)
= 0.857 339

PV

0.428.883

11

0.397.114

12

0.367.698

13

0.340.461

14

0.315.242

15

Source
: Gitinger
(1982
) p.309
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Tahun 1 = 1 : (1 + 0.08)
= 0.925 926

1 i

FV = 1

t = 1, 2, ...., n
N = jumlah tahun
i = tingkat bunga diskonto (discount factor)

Gittinger, p. 361

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NET PRESENT VALUE (NPV)

t n

t 1

B = TR; C = TC

Bt Ct
t
1 i

t = 1, 2, ...., n
n = jumlah tahun
i = tingkat bunga diskonto (discount factor)

INTERNAL RATE OF RETURN (IRR)

t n

t 1

Bt Ct
0
t
1 i

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Bt = manfaat yang diperoleh tiap tahun

Ct = biaya yang dikeluarkan tiap tahun

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Alternative Theories
The objective of the Firms

Sales Maximization

p.11

After an adequate rate of profit has been earned

Strong correlation: executives salaries & sales, not
salaries & profits

A Model of Management Utility Maximization:

management/agent >< ownership/principal
Principal-agent problem maximizing managers benefits
rather than principals (owners) interest.

A satisficing behavior: a satisficing rather than a

maximizing value managers p.12
Satisfactory goal in sales, profits, growth, mkt share etc
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Definitions of Profit

p.14

Profit rates differ among firms: steel, textiles, railroad earn low profits
comparing pharmaceutical, office equipment, high tech industries

Business Profit: Total revenue minus the

explicit or accounting costs of production.
Economic Profit: Total revenue minus the
explicit and implicit costs of production.
Implicit costs = salary & return could earn from other firms. P.14

Opportunity Cost: Implicit value of a

resource in its best alternative use.

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The Economic Profit :

Revenue econ costs (opportunity costs)
A business profits = $ 30,000.But the entrepreneur could have earned $
35,000.- by managing another firm and $
10,000.- by landing out his capital.
Economic profits = $30,000.- $ 35,000.- $
10,000.- = $ 15,000.- ( economic loss)
$ 35,000.- = implicit or opportunity cost
p. 14
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Econ Profit = Normal Profit

The amount of profit required to keep an entrepreneur
in particular line of production
A theoretical concept for the economist
In practiced it could not be precisely calculated
Earning more than normal profit = other firms
will be attracted into that industry
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Theories of Profit

pp.15-16

Risk-Bearing Theories of Profit

above normal profit (i.e.

econ profits): petroleum exploration because of the greater risk

Frictional Theory of Profit in long run may earn a profit or

incur loss = a normal return or zero (economic) profit

Monopoly Theory of Profit can continue to earn profits

even in the long run because can restrict output & charge higher prices

Innovation Theory of Profit profit is the reward for the

introduction of a successful innovation. The patent system is design to
protect the profit of successful innovator

Managerial Efficiency Theory of Profit

if average firm
tends to earn a normal return in the long run firms that are more
efficient would earn above normal returns and economic profits.
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Function of Profit

p.16

Profit is a signal that guides the

allocation of societys resources.
High profits in an industry are a signal
that buyers want more of what the
industry produces.
Low (or negative) profits in an industry
are a signal that buyers want less of
what the industry produces.
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Business Ethics

pp.17-19

The code or guidelines that prescribe

acceptable behavior in business behavior
& business transactions
Identifies types of behavior that businesses
and their employees should not engage in.
Source of guidance that goes beyond
enforceable laws.
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The Changing Environment of

Managerial Economics pp.21-25
Globalization of Economic Activity
Goods and Services
Capital
Technology
Skilled Labor

Technological Change
Telecommunications Advances
The Internet and the World Wide Web
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GLOBAL CORPORATIONS IN 2000

Company

Country

Total
Sales
(billions $)

Nestle

Switzerland

British
Peroleum

UK

Honda

Foreign
Sales (%)

Foreign
Foreign
Employment
Assets (%)
(%)

49.6

98.5

88.3

97.1

148.1

71.3

76.4

82.4

Japan

57.5

72.9

55.4

50.0

Volkswagen

Germany

79.6

72.6

56.3

49.4

Fiat

Italy

53.6

66.9

55.1

50.1

Sony

Japan

63.7

67.2

44.3

60.0

Unilever

Netherl/UK

44.3

58.9

38.8

72.9

IBM

US

88.4

57.9

48.8

53.7

p.22
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TEN ECONOMIC PRINCIPLES FOR MANAGERS

1.
2.
3.
4.

The Role of Managers Is to Make Decisions

T&T p.3-10
Decisions Are Always Among Alternatives
Decision Alternatives Always Have Costs and Benefits
The Anticipated Objective of Management Is to Increase the
Firms Value
5. The Firms Value Is Measured by Its Expected Profits
6. The Firms Sale Revenue Depends on D for Its Product
7. The Firm Must Minimize Cost for Each Level of Output
8. The Firm Must Develop a Strategy Consistent with Its Market
9. The Firms Growth Depends on Rational Investment
Decisions
10.Successful Firms Deal Rationally and Ethically With Laws and
Regulations
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TEN ECONOMIC PRINCIPLES FOR MANAGERS

1. The Role of Managers Is to Make Decisions.
No firm has unlimited resources managers must
make decisions how the resources (material, human,
financial) are employed.

2. Decisions Are Always Among Alternatives

whether to be open or closed; whether to buy new or the
old one Choices are always among alternatives.

3. Decision Alternatives Always Have Costs and

Benefits
The opportunity cost of any choice is
measured by the forgone (next best) alternative. Increasing
output would be a rational decision if the additional benefit
exceeds the additional cost = the marginal or incremental
approach to decision making.
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4. The Anticipated Objective of Management Is to

Increase the Firms Value
The value of the firm = the profits; The
Principal- Agent Problem: the objectives of the
shareholders/principal and the managers/agents do not
coincide the firm may not be run in a way that maximize its
value.

5. The Firms Value Is Measured by Its Expected Profits

n
t present
TRt value
TCt = discounted measures.
the
Valueof Firm

t
t
(1

r
)
(1

r
)
t 1
t 1
n

6. The Firms Sale Revenue Depends on D for Its

Product
the ability to generate revenue from sales
depends on the actions of the buyers source of D =
individual consumer.
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7. The Firm Must Minimize Cost for Each Level of Output

minimizing cost: (1) technology of production & (2) input
prices.

8. The Firm Must Develop a Strategy Consistent with Its

Market
the number of sellers & how they behave;
few sellers advertising, physical changes in products,
improving conditions for customers.

9. The Firms Growth Depends on Rational Investment

Decisions
capital project analysis: looking a long way into
the future (10 or 20 years). Calculating stream of benefits
public sector projects: metropolitan commuter railways, dams,
stadiums, and irrigation projects risk is an important
consideration, the rate of discount applied to future returns:
projects riskiness
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10. Successful Firms Deal Rationally and Ethically

With Laws and Regulations
managers do not always behave nicely. Monopoly firms
have used predatory practices; produced dangerous
product, pollution rules of the game: fair trade, antitrust,
consumer protection, environmental protection.
The message to managers: care must be taken to bahave
ethically and to make certain the rules of game are
followed. For ignorance is no excuse.

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