Managerial Economics For Dummies

Introduction

If left to my own desires, I would have titled this book How to Make a Gazillion Dollars. First, I think you’d be more interested in reading the book if I told you it would help you make a lot of money. Second, the title is a much better descriptor of the book’s content than Managerial Economics. Can anybody “manage” economics?

I don’t mean to say that managerial economics is a bad title; indeed, that’s what economists call this subject. But such a term begs the question — what are you managing? The answer is your business, and if you’re managing a business, your goal is to make as much profit as possible.

Some people think profit is a bad thing — it’s not. Profit serves a crucial signaling function, and trying to make a lot of it means you’re paying attention to the signal. If you’re making a lot of profit, that means everyone wants the good you’re producing. But other business owners see this success and say, “I want to make lots of profit too.” So their businesses start making the same or similar products, and all of a sudden the good that consumers really want is supplied in abundance. That’s a good thing.

Similarly, if you’re losing money, it’s because consumers don’t want what you’re producing — at least not at the price you’re charging. So, you go out of business, or you start charging a lower price until consumers are happy. That’s also a good thing.

If you’re paying attention to profit, you’re ultimately interested in helping other people get the things ...