micro 1

Question 1

managerial economics

Answer 1

refers to the application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.

Question 2

managerial economics includes

Answer 2

–Applications of economic theory
–Quantitative methods
–Statistical methods
–Computational methods

Question 3

economics

Answer 3

–The study of choice facing scarcity and its unintended consequences.

Question 4

microeconomics

Answer 4

–Study of the economic behavior of individual decision-making units.

Question 5

macroeconomics

Answer 5

Study of the total or aggregate level of output, income, employment, consumption, investment, and prices for the economy viewed as a whole

Question 6

mathematical economics

Answer 6

–Expresses and analyzes economic models using the tools of mathematics. Ex.: the demand function.

Question 7

Econometrics

Answer 7

Applies statistical tools to real-world data to estimate the models postulated by economic theory and for forecasting.

Question 8

the decision making process

Answer 8

1. Define the problem
2. Determine the objective
3. Id possible solutions
4. Select the best possible solution
5. Implement the Decision
   (managers job to make decisions and solves problems- how they should do it)

Question 9

The Firm

Answer 9

an organization that combines and organizes resources for the purpose of producing goods and/or services for sale.
–internalizes transactions, reducing transaction costs. (firms become smaller)

Question 10

according to economic theory:

Answer 10

–the primary goal of managers is to maximize the value of the firm (this is given by the present value of all expected future profits of the firm and money means value of the firm)
–goal is to make money. How will you measure it??

Question 11

the present value of expected future profits:

Answer 11

PV=π1/(1+r)^1 +π2/(1+r)^2 +π3/(1+r)^3 + …
Notice that π=TR -TC (profits in year 1, 2, 3, ….) (total revenue minus total costs—– profits)
(money in the future is uncertain and discounted)

Money today can grow by investing - why money today is better than money in the future (this is why we discount it)

Question 12

constraints that firms face

Answer 12

–Resource constraints
–Legal constraints (regulation)
–Managerial constraints

Question 13

constrained optimization

Answer 13

–The primary goal or objective of the firm is to maximize wealth or the value of the firm subject to the constraints it faces.

Question 14

alternative theories

Answer 14

sales maximization, management utility maximization, satisfying behavior

Question 15

sales maximization

Answer 15

–Maximize sales after an adequate profit has been earned

Question 16

management utility maximization

Answer 16

–Aims to resolve principal-agent problem (self benefit above the companies- owners aren’t the people running the company so the agent -CEO may have different objectives than the owners)

Question 17

satisficing behavior

Answer 17

–Due to uncertainty and lack of data, firms strive for some measurable and attainable goal (maybe if they are a new firm)

Question 18

business and accounting profit

Answer 18

-–Total revenue minus the explicit or accounting costs.
–explicit costs are the ones that you can see (ex: wages, rent)

Question 19

economic profit

Answer 19

–Total revenue minus the explicit and implicit costs.
–implicit costs are the opportunity costs - what you could have if you didn’t run the business

Question 20

opportunity costs

Answer 20

–Implicit value of a resource in its best alternative use.

Question 21

explicit or accounting costs

Answer 21

–Actual out-of-pocket expenditures of the firm to purchase or hire the inputs.

Question 22

implicit or opportunity costs

Answer 22

–Value of the inputs owned and used by the firm in its own production processes.

Question 23

risk bearing theory of profit

Answer 23

–Above-normal returns are required in fields that are above-average risk.

Question 24

frictional theory of profit

Answer 24

–Profits arise from friction or disturbances from long-run equilibrium.

Question 25

monopoly theory of profit

Answer 25

–Firms with monopoly power can restrict output and charge higher prices and earn profits even in the long-run.

Question 26

innovation theory of profit

Answer 26

–Profit is the reward for the introduction of a successful innovation. (difficult to compete with)

Question 27

Managerial efficiency theory of profit:

Answer 27

–More efficient firms may earn above-normal returns and economic profits in the short-run.(ex: walmart)

Question 28

profit

Answer 28

is a signal that guides the allocation of society’s resources. (company making profit signals that people want and like that product)

Question 29

the international framework

Answer 29

-rapid movement toward globalization of economic
-Managerial economics should be studied in an international framework.

Question 30

the firms operate in the world that has become more

Answer 30

risky, crisis prone, sluggish

Question 31

technology change

Answer 31

the internet, advances in telecommunications

Question 32

cyber attacks

Answer 32

–Arose with advent of Internet
–Requires with firms to invest in security and insurance