Managerial Economics Answer Key Michael Baye
Version 18 October 2007
Managerial Economics – Concerned with the application of economic principles and methods to the decision making process under conditions of uncertainty.
Theory Tools: Micro Economics, Statistics, Econometrics (OLS)
Software and Decision Support Tools: Excel, Matlab, B34S
Goal: Develop a systematic and reproducible decision making strategy.
Common Tasks facing a Modern Manager: Whether to lease or buy equipment?
How to determine the shape of the cost curve of a production process.
How to price a product.
How to estimate Demand for a product.
How to forecast Demand.
How to estimate a production function.
How a production function can be used to set wages.
How to determine the appropriate level of advertising.
How to estimate the cost of service of a utility.
How to determine the minimum cost of a diet.
The key goal is to facilitate sensitivity or “what if” analysis. From the class you will be able to modify the Excel "decision" files to handle your problems.
Manager should be able to incorporate business practice (such as markup pricing) into Applied Managerial Economic Theory
Seek to establish rules and principles to facilitate the attainment of the desired economic goals of management.
Positive Economics: How economic agents operate (description).
Normative Economics: How economic agents should operate (prescription).
Managerial Economics: Mostly normative.
Models designed for explanatory purposes and are to be judged on the basis of how well they explain reality.
Models designed for predictive purposes must be judged by the accuracy of their predictions.
Simple Math Toolkit
To find a max or min:
1. Set first derivative = 0.0 and solve 2. Calculate second derivative. + => min, - => max
Problem could have been solved by setting slopes equal and solving
Problems to test your skills.
Matlab programs to calculate roots of these
Managerial Economics – Concerned with the application of economic principles and methods to the decision making process under conditions of uncertainty.
Theory Tools: Micro Economics, Statistics, Econometrics (OLS)
Software and Decision Support Tools: Excel, Matlab, B34S
Goal: Develop a systematic and reproducible decision making strategy.
Common Tasks facing a Modern Manager: Whether to lease or buy equipment?
How to determine the shape of the cost curve of a production process.
How to price a product.
How to estimate Demand for a product.
How to forecast Demand.
How to estimate a production function.
How a production function can be used to set wages.
How to determine the appropriate level of advertising.
How to estimate the cost of service of a utility.
How to determine the minimum cost of a diet.
The key goal is to facilitate sensitivity or “what if” analysis. From the class you will be able to modify the Excel "decision" files to handle your problems.
Manager should be able to incorporate business practice (such as markup pricing) into Applied Managerial Economic Theory
Seek to establish rules and principles to facilitate the attainment of the desired economic goals of management.
Positive Economics: How economic agents operate (description).
Normative Economics: How economic agents should operate (prescription).
Managerial Economics: Mostly normative.
Models designed for explanatory purposes and are to be judged on the basis of how well they explain reality.
Models designed for predictive purposes must be judged by the accuracy of their predictions.
Simple Math Toolkit
To find a max or min:
1. Set first derivative = 0.0 and solve 2. Calculate second derivative. + => min, - => max
Problem could have been solved by setting slopes equal and solving
Problems to test your skills.
Matlab programs to calculate roots of these