Managerial Economics Overview

Question 1

Applies economic tools and techniques to business decision-making

Answer 1

Managerial Economics

Question 2

The study how to direct scarce resources in the most efficient way to achieve the managerial goal

Answer 2

Managerial Economics

Question 3

Three Basic Economic Questions

Answer 3

1. WHAT commodities should be produced?
2. HOW should those commodities be produced?
3. FOR WHOM are those commodities produced?

Question 4

Three Major Areas of Manager’s Tasks

Answer 4

1. Help develop firm’s goals.
2. Must develop strategies to achieve the goals.
3. Must acquire and direct the resources necessary for achieving the goals.

Question 5

The basic model of business, which means that firms are useful for producing and distributing goods and services.

Answer 5

Theory of the Firm

Question 6

The main goal of the firm.

Answer 6

Earning profit

Question 7

What are included in the recent main goal of the firm?

Answer 7

Factor of Uncertainty and Time Value of Money

Question 8

What is the primary goal of the firm in the more complete model?

Answer 8

Long-term expected value maximization

Question 9

Resources that are owned by other and hired, rented, or leased by the business.

Answer 9

Market-supplied resources

Question 10

Resources that are owned and used by the firm.

Answer 10

Owner-supplied resources

Question 11

Market-Supplied Resources or Owner-Supplied Resources

Labor from workers

Answer 11

Market-supplied resources

Question 12

Market-Supplied Resources or Owner-Supplied Resources

Raw materials from suppliers

Answer 12

Market-supplied resources

Question 13

Market-Supplied Resources or Owner-Supplied Resources

Capital equipment rented or leased

Answer 13

Market-supplied resources

Question 14

Market-Supplied Resources or Owner-Supplied Resources

Money provided by the owners

Answer 14

Owner-supplied resources

Question 15

Market-Supplied Resources or Owner-Supplied Resources

Capital owned by the firm

Answer 15

Owner-supplied resources

Question 16

Market-Supplied Resources or Owner-Supplied Resources

Time and labor services provided by the owners

Answer 16

Owner-supplied resources

Question 17

Market-Supplied Resources or Owner-Supplied Resources

Land and buildings owned by the firm

Answer 17

Owner-supplied resources

Question 18

These are what the business pays for the use of these resources.

Answer 18

Monetary Costs of market-supplied resources

Question 19

Other term for monetary costs of market-supplied resources

Answer 19

Explicit Costs

Question 20

Other term for opportunity costs of owner-supplied resources

Answer 20

Implicit Costs

Question 21

What is involved if the owner-supplied resources does not require the firm to pay money?

Answer 21

Opportunity Costs of owner-supplied resources

Question 22

It is defined as the residual of sales revenue minus the explicit costs of doing business.

Answer 22

Business Profit/Accounting Profit

Question 23

It only considers the explicit costs.

Answer 23

Business Profit/Accounting Profit

Question 24

Accounting Profit Equation

Answer 24

AP = Revenues - Explicit Costs

Question 25

It is the excess of revenue over costs, compensating inputs provided by the owner.

Answer 25

Economic Profit

Question 26

It is the business profit minus the implicit costs of capital and any of the owner-provided inputs.

Answer 26

Economic Profit

Question 27

Economists include opportunity cost in the costs of doing business.

Answer 27

Economic Profit

Question 28

It considers both explicit and implicit costs.

Answer 28

Economic Profit

Question 29

Economic Profit Equation

Answer 29

EP = Revenues - Explicit Costs - Implicit Costs

Question 30

States that market are sometimes in disequilibrium because of unanticipated changes in demand or cost conditions.

Answer 30

Frictional Profit Theory

Question 31

Explains that some firms have above-normal profits because they are protected from competition by high barriers to entry.

Answer 31

Monopoly Profit Theory

Question 32

Describes above-normal profits that arise following successful invention or modernization.

Answer 32

Innovation Profit Theory

Question 33

States that firms will have above-normal rates of return if they achieve extraordinary success in meeting customer needs and maintaining efficient operations.

Answer 33

Compensatory Profit Theory

Question 34

Market structure with the highest degree of competition.

Answer 34

Perfect Competition

Question 35

It has a large number of firms producing identical products.

Answer 35

Perfect Competition

Question 36

Managers must determine what quantity of output to produce given the price.

Answer 36

Perfect Competition

Question 37

Price is determined by supply and demand in the market, and the individual firm has no input on that price.

Answer 37

Perfect Competition

Question 38

Kinds of firms that can choose both the profit-maximizing quantity and price.

Answer 38

Monopolistic Competition

Question 39

Don't have to consider direct competition.

Answer 39

Monopoly

Question 40

Has a large number of firms but the goods produced by the firms isn't identical.

Answer 40

Monopolistic Competition

Question 41

Because of differences between goods, customers develop preferences for one firm's product over another firm's product.

Answer 41

Monopolistic Competition

Question 42

Characterized by a small number of large firms where rivals are easily identified.

Answer 42

Oligopoly

Question 43

Close interaction leads to mutual interdependence.

Answer 43

Oligopoly

Question 44

Decision making means that firms should consider how their rivals respond to their actions.

Answer 44

Oligopoly

Question 45

Single firm producing a commodity that has no close substitutes.

Answer 45

Monopoly

Question 46

If the consumers believe that the price is too high, they will not buy the product.

Answer 46

Monopoly