Chapter 1 Flashcards
Economics
is the science of making decisions in the presence of scarce resources
Managerial Economics
is the study of how to direct scarce resources in the way that most efficiently achieves a managerial goal
Accounting Profits
total revenue-dollar cost of producing the firm’s goods or services
Economic Profits
total revenue- total opportunity cost of producing the firm’s goods or services
Explicit cost
cost of the resource
Implicit Cost
giving up the best alternative use of the resource
Net Benefits Equation
NB(Q)= B(Q)-C(Q)
Marginal Benefit
the change in total benefits
refers to the additional benefit that arise by using an additional unit of the managerial control variable.
Marginal Cost
the change in total cost
is the additional cost incurred by using an additional unit of the managerial cost variable
Marginal Net Benefit Equation
MNB(Q)= MB(Q)-MC(Q)
marginal net benefits
change in net benefits that arises from a one unit change in Q
What do profits signal?
profits signal to resource holders where resources are most highly valued by society
What does maximizing net benefits take into account that total benefits does not?
cost
Opportunity cost is what in relation to accounting costs?
usually higher because of explicit and implicit
Draw benefits and cost curve
…..
As long as marginal benefits exceed marginal cost
an increase in Q adds more to total benefits
Marginal Principle
to maximize 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
So long as marginal benefits exceeds marginals costs
an increase in Q adds more to total benefits than it does to total cost
Maximizing benefits and not taking into account cost
it is equivalent to maximizing total revenues without regard to costs
