Managerial economics

Economic theory is great!

But how can I apply it in my

Let’s try to bridge the gap between theory and practice !

Demand analysis and estimation, production and cost analysis, forecasting and decision

The role of firm in society;
goals, objectives

Explanation of market strategy

Comprehension of

The role of the firm in society

Primary resources

Labour

The firm

Useful goods or services

Society

Capital

Efficiently satisfied needs

Profit

Engine for economic system

=

Firm’s aspiration for profit secure:

Employment

Production of demanded goods and services

Tax collection

Efficient

Paterns of firm’s behavior

? Aims, objectives?

Profit maximization model

The main goal: maximization of benefits in relation to

Profit maximization in short term

Firm’s value maximization in the long term

Сost

Firm’s value in long term is determined by the flows of

Discounted value conception

Basis: compound interest

Discounting – the reversal of compounding interest.

PV

Reliable future profits => discount rate without risk

Future profit is not reliable

Risk discount rate
r = i + risk

Future profit flow is changing by years:

Owner’s fortune maximization

Basis – value of a share
The profit maximization model

Fundamental approach to market value of a share evaluation:

Capitalized value of

The business axiom:
The higher risk the higher profit should be!