Summary

Samenvatting managerial economics

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Course
Managerial economics (D0T96A)

Institution
Katholieke Universiteit Leuven (KU Leuven)

Book
Industrial Organization 2nd ED

This summary is the up-to-date version of Managerial Economics. The content of the course has been fully updated in the new lesson content. Each chapter has been described in detail. Exercises have also been incorporated.

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Summarized whole book? Yes
Uploaded on May 9, 2023
Number of pages 91
Written in 2022/2023
Type Summary

managerial economics
economics
business game
markets and prices
micro economics

Book Title:Industrial Organization 2nd ED

Author(s):Paul Belleflamme, Martin Peitz

Edition:Unknown
ISBN:9781107687899
Edition:Unknown

Institution
Katholieke Universiteit Leuven (KU Leuven)
Education
TEW,HIR, ERB, EW
Course
Managerial economics (D0T96A)

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Managerial economics
Les 1 : introduction and reminders
Oversight:

1 : Industrial organization : concepts and defenitions

Algemeen:

= > focus ligt voornamelijk op markten met imperfecte competitie :

 Nog specifieker leggen we focus op de oligopolie
 Dit doordat bedrijven in deze marktsituatie verschillende strategieën gebruiken
 Zijn deze strategieën die we behandelen in deze curus

Voorbeelden oligopolie:

2 : Reminders from microeconomics
o Markets:

,= plaats waar kopers en verkopers elkaar tegenkomen

 Productionfunction
1) Productie functie : relatie inputs en outputs weergeeft

=> Bèta’s stellen de gewichten voor die PF op prod heeft

2) Cobb Douglas productie functie :

=> Y = output , L = arbeid , K = kapitaal, A = technologie

 Fixed costs = remain constant regardless of the production level
 Are only fixed for certain period

 Disadvantage : during times of lower production = same high costs
 Sunk costs = costs which, once committed cannot be removed
 Sunk costs are always fixed costs , but not the other way around
 Examples : advertising , investments in equipment, development

 Economies of scale = it becomes less costly to produce, the more output you generate

 The existence of economies of scale => favours concentrated markets : Monopolies

 Economies of scope = narrowing your costs by increasing your product range
 Cheaper to produce variety of product at the same time than all apart
 Can be explained by the complementarity of the produced products

 Profit maximization => WERKWIJZE in perfecte mededinging : perfect competition

Profit : )=

 First order condition :

,Where :

 To compute profit maximization : only marginal costs will matter

!! : however => other costs will be important in imperfectly setting because :

 Know the demand : given that they want to maximize their profit
o Set appropriate price
o Thy to increase the demand – by innovating or advertising
 Monopolistic situation : market demand = firm’s demand
 Competitive setting : firm’s action has influence on other firm’s => the market forms it
selfs
 Consumers:
o We assume they are rational = make the decision which gives them the highest pay-
off
o We assume they are price-takers = have to follow the market price because they
don’t have enough power as an individual to influence market prices on its own
o Individual decision can be aggregated in a demand function

Generally :

 More complex representation of market demand:

 We can make it even more complex by adding numerous other variables
 Also variable of other companies :

Illustration : the Belgo Smartphone

, Demand function :

Insights :

o Demand decreases with the increase of its price
o Demand increases with the increase of competitors price
o Demand increases with the advertising effort
 Price elasticity = the percentage change of demand given a change in price

 we can distinguish different product based on the elasticity:

 Types of price elasticity :
o Own price elasticity
o Cross elasticity : how does the demand of my product reacts to the increase in price
of my competitor

 Perfect competition :
o Firm is price taker = follows the market price
o Price is determined by interaction of all firms and consumers
o Each firm’s production is small compared to the market output

 Monopoly: (YouTube: economic profit for a monopoly: https://www.youtube.com/watch?
v=PEFEnss--mU)
o One supplier for the whole market
o Firm is price maker = sets the market price

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