Managerial Economics Overview Flashcards
Applies economic tools and techniques to business decision-making
Managerial Economics
The study how to direct scarce resources in the most efficient way to achieve the managerial goal
Managerial Economics
Three Basic Economic Questions
- WHAT commodities should be produced?
- HOW should those commodities be produced?
- FOR WHOM are those commodities produced?
Three Major Areas of Manager’s Tasks
- Help develop firm’s goals.
- Must develop strategies to achieve the goals.
- Must acquire and direct the resources necessary for achieving the goals.
The basic model of business, which means that firms are useful for producing and distributing goods and services.
Theory of the Firm
The main goal of the firm.
Earning profit
What are included in the recent main goal of the firm?
Factor of Uncertainty and Time Value of Money
What is the primary goal of the firm in the more complete model?
Long-term expected value maximization
Resources that are owned by other and hired, rented, or leased by the business.
Market-supplied resources
Resources that are owned and used by the firm.
Owner-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Labor from workers
Market-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Raw materials from suppliers
Market-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Capital equipment rented or leased
Market-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Money provided by the owners
Owner-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Capital owned by the firm
Owner-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Time and labor services provided by the owners
Owner-supplied resources
Market-Supplied Resources or Owner-Supplied Resources
Land and buildings owned by the firm
Owner-supplied resources
These are what the business pays for the use of these resources.
Monetary Costs of market-supplied resources
Other term for monetary costs of market-supplied resources
Explicit Costs
Other term for opportunity costs of owner-supplied resources
Implicit Costs
What is involved if the owner-supplied resources does not require the firm to pay money?
Opportunity Costs of owner-supplied resources
It is defined as the residual of sales revenue minus the explicit costs of doing business.
Business Profit/Accounting Profit
It only considers the explicit costs.
Business Profit/Accounting Profit
Accounting Profit Equation
AP = Revenues - Explicit Costs
It is the excess of revenue over costs, compensating inputs provided by the owner.
Economic Profit
It is the business profit minus the implicit costs of capital and any of the owner-provided inputs.
Economic Profit
Economists include opportunity cost in the costs of doing business.
Economic Profit
It considers both explicit and implicit costs.
Economic Profit
Economic Profit Equation
EP = Revenues - Explicit Costs - Implicit Costs
States that market are sometimes in disequilibrium because of unanticipated changes in demand or cost conditions.
Frictional Profit Theory
Explains that some firms have above-normal profits because they are protected from competition by high barriers to entry.
Monopoly Profit Theory
Describes above-normal profits that arise following successful invention or modernization.
Innovation Profit Theory
States that firms will have above-normal rates of return if they achieve extraordinary success in meeting customer needs and maintaining efficient operations.
Compensatory Profit Theory
Market structure with the highest degree of competition.
Perfect Competition
It has a large number of firms producing identical products.
Perfect Competition
Managers must determine what quantity of output to produce given the price.
Perfect Competition
Price is determined by supply and demand in the market, and the individual firm has no input on that price.
Perfect Competition
Kinds of firms that can choose both the profit-maximizing quantity and price.
Monopolistic Competition
Don’t have to consider direct competition.
Monopoly
Has a large number of firms but the goods produced by the firms isn’t identical.
Monopolistic Competition
Because of differences between goods, customers develop preferences for one firm’s product over another firm’s product.
Monopolistic Competition
Characterized by a small number of large firms where rivals are easily identified.
Oligopoly
Close interaction leads to mutual interdependence.
Oligopoly
Decision making means that firms should consider how their rivals respond to their actions.
Oligopoly
Single firm producing a commodity that has no close substitutes.
Monopoly
If the consumers believe that the price is too high, they will not buy the product.
Monopoly
