Managerial economics tutor PDF

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Q1.4: In the wake of corporate scandals at Enron, Tyco, and WorldCom, some argue that managers of large, publicly owned firms sometimes make decisions to maximize their own welfare as opposed to that of stockholders. Does such behaviour create problems in using value maximization as a basis for examining managerial decision making? Answer A value maximization decision making is when the managers maximize the value of the company. In a decision making process there are 2 things that affected managers which are the market pressures and the risk of being replaced. The stockholders (investors) are the superior of a managers, the decision made by the managers also evaluated by the stockholders if the decision creates a bad performance it leads to a replacement of the manager position as they are responsible for the company performance. The market pressures forces managers to increase the company efficiency. So, if the managers make decisions to maximize their own welfare is still acceptable, since stakeholders be their consideration to secure their position in the company so there will be no problem as long as it increases company’s value. Q1.8: Why is the concept of enlightened self-interest important in economics? Answer Self-interest is important in economics because it forces people to do something to satisfy themselves. Economics involve a wealth and decision making. In the market, there are a bunch of sellers offering their products, they sell a product for their self-interest, means that they will get money for an exchange with the product that they sell, and from the sellers can use their money on anything they wants. So, basically every actions taken is based on people self-interest. The seller has to make a good product so the customers are willing to buy their product, but the first motivation is getting money instead of customer satisfaction. So, in the other words enlightened self-interest is like a motivation for an economic activity to happen, without self-interest, economy won’t be healthy as not many people want to involve in it. Even though, “self interest” defines a negative things, but from other perspectives “self interest” is also positive.

1. One of the most important skills to learn in managerial economics is the ability to identify a good business. Discuss at least four characteristics of a good business. Answer 1. Low labor cost A good business should find a way how to minimize cost, one aspects can be reduced is a labor cost. It is one of a reason why big company wants to expand their business to a overseas country, it must be because they found in certain countries a labor cost is low, but will produced the same output. The cutting cost of labor will reduce the operating expenses.

2. Good research to develop products and new markets A good business should know where to put their product, what kind of product is acceptable is certain types of market or they can do some research before they launch the product into a certain market. A good business know the right market for its product and also the new products, as the consumers are demanding more and new and better product, a company

should be able to provide them those kind of products that they like. A good research is needed fot a good business 3. A high rate of returns for stakeholders (ROE) This is one of the most important thing in a business. A stakeholders (investors) have a relationship to the company, they put a money into our company in order to get a higher return in the future and help us in a financial way. So, by giving them a higher return would be indicates as a good business 4. Strong franchises Franchise is like an authorization granted by the company to enable them doing some commercial activities. When the business got bigger you need to open a franchises which allow other group or individuals sell your products, it can cut the cost and also more efficient compare to when you open more places by your own, but still a company should have a strong franchises as they carrying the name of the company

2. Identify and talk about at least four companies that you regard as having the characteristics listed here. 1. Apple It is one of the most well-known company in the world, as one of a trillion dollar company made apple be one of the biggest company in the world, they can achieve something that other company don’t. they apply the first characteristics which is a low labor cost, apple expand its businesses to china, they open stores and also a factory to reduce the labor cost since in china the labor cost is lower than americans, and because Apple have a high value in the market and also making so much profit which allow them to give a high rate of return to its stakeholders. They also have a bunch of good products that is sold out in a market which means the market research is good. 2. Adidas It is a competitor of Nike in a sportwear industries. In some cases, adidas is a better business than nike. Adidas has one product called adidas parley which is a shoe made by a recycled plastic. Adidas is constantly make a new product for their target market (athletes).

3. Coca cola As written in the article, coca cola is a good business because it keeps selling a non generic product which means that there is no other business selling the exact same product with coca-cola, they have their own recipe for the beverages which makes them unique and because of that reason, people keep buying coca-cola rather than other beverages brand that exist now. Coca cola create a good image for its business, for example their slogan “always coca cola”, the business associates with a good things such as happy times, people will buy coca cola when they are happy or when they want to be happy, and also the profits are high.

4. Microsof One of the biggest technology company, the reason why it keeps getting bigger because the business is well managed which makes them an example of a good business.

3. Suppose you bought common stock in each of the four companies identified here. Three years from now, how would you know if your analysis was correct? What would convince you that your analysis was wrong? To identify whether the investment is correct or wrong, we can use above normal return, if we generate above normal return it means that the investment is correct otherwise it’s a wrong investment. Another way to identify the investment correct or wrong is by choosing the company that is not fully recognized by other investors, which allows investors to buy the share in a low price, a start up company can be a good example for this, as not many investors know the company, and if the business grow in the future, the return for tha share would be high, it means that you choose a correct investment....