Managerial economics

Modeling in Managerial Economics
Types of models in Managerial Economics
Graphical models in Managerial Economics
Mathematical and economic models in Managerial Economics

Types of models in Managerial Economics
Modeling in management helps to:
take into account main factors influencing problem
take into account previous experience in the area of problem
to get a right decision by using modern mathematical methods
provide a visibility of the problem
Etc.

Types of models in Managerial Economics
Model is a simplified imagination of a modeling object, which adequately reflects it’s properties, most significant in terms of modeling

Types of models in Managerial Economics
Accuracy
Abstractness
Physical
Analog
Mathematical

Types of models in Managerial Economics
Physical - a model that is a physical object which is a reduced or enlarged copy of the original, such as model airplane;

Types of models in Managerial Economics
Analog - a model with the original properties, but that differs significantly from it in appearance,
such as a map, chart organizational structure, a graph between certain values, the scheme of the algorithm to perform a function.
An important type of analog is a game model that allow to understand the possible way of development of real events and to train staff to operate effectively and interact in similar situations by organizing games, such as military exercises, management games

Types of models in Managerial Economics
Mathematical - a model that uses mathematical symbols and methods to describe the characteristics of the object, such as the formula for calculating revenue from sales through the sales revenue and cost of sales.

Graphical models in Managerial Economics
The most frequently used graphical models in Managerial Economics are:
Graphs and diagrams;
Gantt graph;
Block chart;
Process diagrams;
PERT chart

Graphical models in Managerial Economics
Graphs and diagrams are used to illustrate:
Relation between economic indicators;
Tendencies in development of economic objects, phenomena;
Probability distribution;
Structure of an object
Etc

Graphical models in Managerial Economics
Gantt graphs are used to illustrate a project schedule to plan and control its performance.
Elements of a chart create work breakdown structure (WBS) that is a deliverable oriented decomposition of a project into smaller components
WBS should contain all elements of a project, but each element should be exclusive

Graphical models in Managerial Economics
Block chart illustrates the algorithm of any activity.
Meaning of symbols used:
point of beginning or end of the operation;
step or action of a process;
decision point;
entrance or exit;
document

Graphical models in Managerial Economics
Process diagram shows a structure of a process as a sequence of activities and flows of materials (information) between them.
Process diagrams can be built according to several standards:
IDEF0
IDEF3
ARIS
BPMN
UML and so on

Graphical models in Managerial Economics
IDEF0 box format

Graphical models in Managerial Economics
The Program (or Project) Evaluation and Review Technique (PERT) is a statistical tool, that is designed to analyze and represent the tasks involved in completing a given project.

Graphical models in Managerial Economics
To create a project model it is necessary to use:
A list of all activities required to complete the project (WBS),
Events that are milestones between activities
The time (duration) that each activity will take to completion,
The dependencies between the activities

Graphical models in Managerial Economics
Main PERT terms
PERT event: a point that marks the start or completion of one or more activities. It consumes no time and uses no resources. When it marks the completion of one or more tasks, it is not “reached” (does not occur) until all of the activities leading to that event have been completed.
predecessor event: an event that immediately precedes some other event without any other events intervening. An event can have multiple predecessor events and can be the predecessor of multiple events.
successor event: an event that immediately follows some other event without any other intervening events. An event can have multiple successor events and can be the successor of multiple events.

Graphical models in Managerial Economics
Main PERT terms
PERT activity: the actual performance of a task which consumes time and requires resources (such as labor, materials, space, machinery). It can be understood as representing the time, effort, and resources required to move from one event to another.
A PERT activity cannot be performed until the predecessor event has occurred.

Graphical models in Managerial Economics
Main PERT terms
optimistic time (O): the minimum possible time required to accomplish a task, assuming everything proceeds better than is normally expected
pessimistic time (P): the maximum possible time required to accomplish a task, assuming everything goes wrong (but excluding major catastrophes).

Graphical models in Managerial Economics
Main PERT terms
most likely time (M): the best estimate of the time required to accomplish a task, assuming everything proceeds as normal.
expected time (TE): the best estimate of the time required to accomplish a task, accounting for the fact that things don't always proceed as normal (the implication being that the expected time is the average time the task would require if the task were repeated on a number of occasions over an extended period of time).
TE = (O + 4M + P) ÷ 6

Graphical models in Managerial Economics
Main PERT terms
Float (slack) is a measure of the excess time and resources available to complete a task. It is the amount of time that a project task can be delayed without causing a delay in any subsequent tasks (free float) or the whole project (total float). Positive slack would indicate ahead of schedule; negative slack would indicate behind schedule; and zero slack would indicate on schedule.
Critical path: the longest possible continuous pathway taken from the initial event to the terminal event. It determines the total calendar time required for the project; and, therefore, any time delays along the critical path will delay the reaching of the terminal event by at least the same amount.
Critical activity: An activity that has total float equal to zero. An activity with zero float is not necessarily on the critical path since its path may not be the longest.

Graphical models in Managerial Economics

Graphical models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics

Mathematical and economic models in Managerial Economics