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manecon (ma'am punsalan) > ch 1: the fundamentals of managerial economics > Flashcards

ch 1: the fundamentals of managerial economics Flashcards

1
Q

A person who directs resources to achieve a stated goal

A

manager

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2
Q

The science of making decisions in the presence of scarce resources

A

economics

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3
Q

The total amount of money taken in from sales (total revenue, or price times quantity sold) minus the dollar cost of producing goods or services.

A

accounting profits

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3
Q

The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal

A

managerial economics

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4
Q

The difference between total revenue and total opportunity cost.

A

economic profits

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5
Q

The explicit cost of a resource plus the implicit cost of giving up its best alternative use.

A

opportunity cost

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6
Q

The Five Forces Framework (sustainable industry profits)

A
  1. Entry
  2. Power of Input Suppliers
  3. Power of Buyers
  4. Industry Rivalry
  5. Substitutes and Complements
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7
Q

Industry Rivalry

A

∙ Concentration
∙ Switching costs
∙ Price, quantity, quality, or service competition
∙ Timing of decisions
∙ Information
∙ Degree of differentiation
∙ Government restraints

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7
Q

Power of Input Suppliers

A

∙ Supplier concentration
∙ Price/productivity of alternative inputs
∙ Relationship-specific investments
∙ Supplier switching costs
∙ Government restraints

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7
Q

The fact that $1 today is worth more than $1 received in the future.

A

time value of money

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8
Q

Entry

A

∙ Entry costs
∙ Sunk costs
∙ Network effects
∙ Switching costs
∙ Speed of adjustment
∙ Economies of scale
∙ Reputation
∙ Government restraints

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8
Q

Power of Buyers

A

∙ Buyer concentration
∙ Price/value of substitute products or services
∙ Relationship-specific investments
∙ Customer switching costs
∙ Government restraints

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9
Q

Substitutes and Complements

A

∙ Price/value of surrogate products or services
∙ Network effects
∙ Government restraints
∙ Price/value of complementary products or services

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10
Q

The amount that would have to be invested today at the prevailing interest rate to generate the given future value.

A

present value

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11
Q

The present value of the income stream generated by a project minus the current cost of the project.

A

net present value

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12
Q

The change in total benefits arising from a change in the managerial control variable Q.

A

marginal benefit

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13
Q

The change in total costs arising from a change in the managerial control variable Q.

A

marginal (incremental) cost (MC)

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14
Q

The additional revenues that stem from a yes- or-no decision.

A

incremental revenues

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15
Q

The additional costs that stem from a yes-or-no decision.

A

incremental costs

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16
Q

directs the efforts of others, including those who delegate tasks within an organization such as a firm, a family, or a club

A

manager

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17
Q

purchases inputs to be used in the production of goods and services such as the output of a firm, food for the needy, or shelter for the homeless

A

manager

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18
Q

are in charge of making other decisions, such as product price or quality.

A

manager

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18
Q

are simply anything used to produce a good or service or, more generally, to achieve a goal.

A

resources

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19
Q

Decisions are important because ________________ implies that by making one choice, you give up another.

A

scarcity

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20
Q

It involves the allocation of scarce resources, and a manager’s task is to allocate resources so as to best meet the manager’s goals.

A

Economic decisions

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21
Q

managers must

(enumerate)

A
  1. Identify Goals and Constraints
  2. Recognize the Nature and Importance of Profits
  3. Understand Incentives
  4. Understand Markets
  5. Recognize the Time Value of Money
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22
Q

The first step in making sound decisions is to have?

A

well-defined goals

(because achieving different goals entails making different decisions.)

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22
Q

It is a very broad discipline in that it describes methods useful for directing everything from the resources of a household to maxi- mize household welfare to the resources of a firm to maximize profits.

A

managerial economics

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23
Q

The overall goal of most firms is to maximize?

A

profits or the firm’s value,

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24
Q

are what show up on the firm’s income statement and are typically reported to the manager by the firm’s account- ing department.

A

accounting profits

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24
Q

Unfortunately, these make it difficult for managers to achieve goals such as max- imizing profits or increasing market share. These include such things as the available technology and the prices of inputs used in production. The goal of maximizing profits requires the manager to decide the optimal price to charge for a product, how much to produce, which technology to use, how much of each input to use, how to react to deci- sions made by competitors, and so on.

A

constraints

24
Q

are an artifact of scarcity

A

Constraints

25
Q

When most people hear the word profit, they think of?

A

accounting profits

25
Q

who stated “It is not out of the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

A

Adam Smith’s classic line from The Wealth of Nations

26
Q

explicit cost are also known as?

A

accounting cost

27
Q

The _______________________ of producing a good or ser- vice generally is higher than accounting costs because it includes both the dollar value of costs (explicit, or accounting, costs) and any implicit costs.

A

opportunity cost

28
Q

Profits signal to resource holders where resources are most highly valued by society.

what principle

A

Profits Are a Signal

29
Q

“five forces” framework was pioneered by?

A

Michael Porter

30
Q

This framework organizes many complex managerial economics issues into categories that impact the sustainability of industry profits

A

the “five forces” framework

31
Q

heightens competition and reduces the margins of existing firms in a wide variety of industry settings.

A

entry

32
Q

can come from a number of directions, including the formation of new companies, globalization strategies by foreign companies, and the introduction of new product lines by existing firms

A

entry

33
Q

Industry profits tend to be lower when suppliers have the power to negotiate favorable terms for their inputs.

A

Power of Input Suppliers.

34
Q

Supplier power tends to be low when inputs are relatively standardized and relationship-specific investments are minimal , input markets are not highly concentrated, or alternative inputs are available with similar marginal productivities per dollar spent .

A

Power of Input Suppliers

35
Q

simillar to the case of suppliers, industry profits tend to be lower when customers or buyers have the power to negotiate favorable terms for the products or services produced in the industry. In most consumer markets, buyers are fragmented and thus buyer con- centration is low.

A

Power of Buyers

36
Q

Buyer concentration and hence customer power tend to be higher in industries that serve relatively few “high-volume” customers.

A

Power of Buyers

36
Q

Buyer power tends to be lower in industries where the cost to customers of switching to other products is high—as is often the case when there are relationship-specific investments and hold-up problems (Chapter 6), imperfect infor- mation that leads to costly consumer search (Chapter 12), or few close substitutes for the prod- uct (Chapters 2, 3, 4, and 11).

A

Power of Buyers

36
Q

The sustainability of industry profits also depends on the nature and intensity of rivalry among firms competing in the industry. Rivalry tends to be less intense (and hence the likelihood of sustaining profits is higher) in concentrated industries—that is, those with relatively few firms.

A

Industry Rivalry

37
Q

The level and sustainability of industry profits also depend on the price and value of interrelated products and services. Porter’s original five forces framework emphasized that the presence of close substitutes erodes industry profitability.

A

Substitutes and Complements

38
Q

plays an important role in guiding the decisions of others.

A

incentives

38
Q

affect how resources are used and how hard workers work.

A

incentives

39
Q

In studying microeconomics in general, and managerial economics in particular, it is import- ant to bear in mind that there are two sides to every transaction in a market: For every buyer of a good there is a corresponding seller.

A

Understand Markets

40
Q

forms of rivalry

(enumerate)

A
  1. Consumer–Producer Rivalry
  2. Consumer–Consumer Rivalry
  3. Producer–Producer Rivalry
41
Q

occurs because of the competing interests regarding the prices of goods

A

Consumer–Producer Rivalry

41
Q

When agents on either side of the market find themselves disadvantaged in the market process, they attempt to induce ____________________ to intervene on their behalf.

A

government

42
Q

reduces the negotiating power of consumers in the marketplace (consumers are competing for limited products)

A

Consumer–Consumer Rivalry

43
Q

this disciplining device functions only when multiple sellers of a product compete in the marketplace. (they are competing for the limited number of consumers)

A

Producer–Producer Rivalry

44
Q

The timing of many decisions involves a gap between the time when the costs of a project are borne and the time when the benefits of the project are received.

A

Recognize the Time Value of Money

45
Q

the higher the interest rate?

A

the lower the present value of a future amount

(Intuitively, the higher the interest rate, the higher the opportunity cost of waiting to receive a future amount and thus the lower the present value of the future amount.)

46
Q

Maximizing profits means maximizing the value of the firm, which is the present value of current and future profits.

A

Profit Maximization

47
Q

states that optimal managerial decisions involve comparing the marginal (or incremental) benefits of a decision with the marginal (or incremental) costs.

A

Marginal analysis

48
Q

is one of the most important managerial tools—a tool we will use repeat- edly throughout this text in alternative contexts.

A

Marginal analysis

49
Q

To maximize net benefits, the manager should increase the managerial control variable up to the point where marginal benefits equal marginal costs. This level of the managerial control variable corresponds to the level at which marginal net benefits are zero; nothing more can be gained by fur- ther changes in that variable.

A

Marginal Principle

50
Q

what are the inputs/resources/factors of production?

A
  1. Land
  2. Labor
  3. Capital
  4. Entrepreneurship (or entreprenrurial ability/skill)
51
Q

these are the natural resources (from nature)

A

land

52
Q

these are the employees or manpower used in production

A

labour

53
Q

these are man-made goods used to produce another product (e.g. machineries and equiptment) or simply money

A

capital

53
Q

these are the ability of the managers to oversee/manage/supervide other resources

A

entrepreneurship (or entreprenrurial ability/skill)

54
Q

this is the process of converting resources

A

production

55
Q

is a branch of social science

A

economics

56
Q

wants to satisfy man and make life convenient (improve quality of life)

A

economics

56
Q

he is the father of modern economics

A

adam smith

57
Q

adam smith introduced(?) economics when? through what?

A

1776 through his book “the wealth of nation”

57
Q

encourages employees to be productive, loyal, and have better output/results

A

incentives

58
Q

compares the changes in the cost and benefit

A

marginal analysis

58
Q

as a manager, you must know when to invest or to invest or not

A

time value of money

58
Q

if this is positive, then a manager should purchase/invest. if it’s negative then purchasing/investing. will result in lost

A

the net present value

59
Q

Government regulations, such as ____________________ or ____________________ can also impact the ability of buyers to obtain more favorable terms.

A

price floors or price ceilings

manecon (ma'am punsalan) (3 decks)

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