Fundamentals of managerial economics
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Fundamentals of managerial economics
1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics an investment partnership with $100 in 1956 and has gone on to accumulate a personal net worth in excess of $30 billion. As both a manager and an investor Buffett is renowned for focusing on the economics of businesses.Berkshire's collection of operating businesses, including the GEICO Insurance Co Fundamentals of managerial economics mpany, International Dairy Queen, Inc., the Nebraska Furniture Mart, and See's Candies, commonly earn 30 percent to 50 percent per year on invested caFundamentals of managerial economics
pital. This is astonishingly good performance in light of the 10 percent to 12 percent return typical of industry in general. A second and equally imp1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics Express Company, The Coca-Cola Company, and The Washington Post Company, among others. As both manager and investor, Buffett looks for "wonderful businesses" with outstanding economic characteristics: high rates of return on invested capital, substantial profit margins on sales, and consistent earni Fundamentals of managerial economics ngs growth. Complicated businesses that face fierce competition or require large capital investment are shunned.'Buffett8 success is powerful testimonFundamentals of managerial economics
y to the practical usefulness of managerial economics. Managerial economics answers fundamental questions. When is the market for a product so attract1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics ly meager pay? Successful managers make good decisions, and one of their most useful tools is the methodology of managerial economics.1 Information abcHit Warren Buffett's investment philosophy and Berkshire Hathaway, Inc., can be found on the Internet (http://www.berkshirehathaway.com).12Introducti Fundamentals of managerial economics onHOW IS MANAGERIAL ECONOMICS USEFUL?managerial economicsApplies evxmoenk took and kvhiuquee to buwnott and administrative dccMion makingManagerial ecFundamentals of managerial economics
onomics applies economic theory and methods to business and administrative decision making. Managerial economics prescribes rules for improving manage1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics managerial behavior. It links economic concepts with quantitative methods to develop vital tools for managerial decision making. This process is illustrated in figure 1.1.Evaluating Choice MlcrnalhesManagerial economics identifies ways to efficiently achieve goals. For example, suppose a small busi Fundamentals of managerial economics ness seeks rapid growth to reach a size that permits efficient use of national media advertising. Managerial economics can be used to identify pricingFundamentals of managerial economics
and production strategies to help meet this short-run objective quickly and effectively. Similarly, managerial economics provides production and mark1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics Is a Tool lor linproiliig Management Decision MakingManagerial economics uses economic concepts and quantitative methods to solve managerial problems.IIIUVMUVUVIIMMANAGERIAL APPLICATIONManagerial EthicsIn Thi' Wall Street journal, it is not hard In find evidence of iiri-Fundamentals of managerial economics
, if honest}' did not pervade corporate AmerÌGi, the ability to conduct busirxTK would CI>1 lap*-. Eventually, the truth always ciwncs out, and when i1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics set of principles. Ethical rules to keep in mind when conducting business include the fullowing:•Above all else, keep your word. Say what you mean, ami mean what you say.•Do the right thing. A handshake with an honorable person is worth more than a ton of legal documents from a corrupt individual.•A Fundamentals of managerial economics ccept responsibility for your mistakes, and fix them. Be quick to share credit for success.•Leave something on the table. Profit with your customer, nFundamentals of managerial economics
ot 1ỊÍ?’your customer.• Stick by your principles. Principles are not for .sale al any prill’.Dixti the "high ni.nl" lead Incorporate MMiisr;? Consider1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics ie Munger, the number-two man at Berkshire, are famous for doing multimillion dollar deals on the basis of a simpk’ hand shake. Al Berkshire, management n-lies upon ihiM-harar ter of the jxuple lhat they am dealing with rather than expensive accounting audits, detailed legal opinions, or liability i Fundamentals of managerial economics nsurance coverage. Buffett says that after some early mistakes, he learned to go into business only with people whom hl- likes, trusts, and admires. AFundamentals of managerial economics
lthough a company will not necessarily prosper because its man agers display admirable qualities, Buffett says he has never made a good deal with a ba1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics iMved with Enron Probe lixl Penronnl Stoke in the Company,’ Thf Wil’,' Strut k.wriMf On.'.Sv. March 4. 2002 (http-//online Wijewn'.Managerial economics lias applications in both profit and not-for-profit sectors. For example, an administrator of a nonprofit hospital strives to provide the best medic Fundamentals of managerial economics al care possible given limited medical staff, equipment, and related resources. Using the tools and concepts of managerial economics, the administratoFundamentals of managerial economics
r can determine the optimal allocation of these limited resources. In short, managerial economics helps managers arrive at a set of operating rules th1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics ies are able to meet objectives efficiently.Making the Best DecisionTo establish appropriate decision rules, managers must understand the economic environment in which they operate. 1 or example, a grocery retailer may offer consumers a highly price-sensitive product, such as milk, at an extremely l Fundamentals of managerial economics ow markup over cost—say, 1 percent to 2 percent—while offering less price-sensitive products, such as nonprescription drugs, at markups of as high asFundamentals of managerial economics
40 percent over cost. Managerial economics describes the logic of this pricing practice with respect to file goal of profit maximization. Similarly, m1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started Fundamentals of managerial economics ate tire possibility of monopoly profits for domestic manufacturers. It docs not explain whether imposing quotas is good public policy; that is a decision involving broader political considerations. Managerial economics only describes the predictable economic consequences of such actions.Managerial Fundamentals of managerial economics economics offers a comprehensive application of economic theory and methodology to management decision making. It is as relevant to the management ofFundamentals of managerial economics
government agencies, cooperatives, schools, hospitals, museums, and similar not-for-profit institutions as it1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., started 1Introductionw M/arren E. Buffett, the celebrated chairman and chief executive officer < < of Omaha, Nebraska-based Berkshire Hathaway, Inc., startedGọi ngay
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