The Fundamentals of Managerial Economics Flashcards
1
Q
The Manager
Definition?
Responsibilities (3)
A
Definition:
- A person who directs resources to achieve a stated goal.
Responsibilities:
- Directs the efforts of others.
- Purchases inputs used in the production of the firm’s output.
- Directs product price or quality/quantity decisions.
2
Q
Economics
Definition?
What are resources used for?
What does scarcity imply?
A
Definition:
- The science of making decisions in the presence of scarce resources.
Key Points:
- Resources are anything used to produce a good or service, or achieve a goal.
- Scarcity implies trade-offs.
3
Q
Managerial Economics
Definition?
Examples of decisions (3)
A
Definition:
- The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal.
Examples of Decisions:
- Should a firm purchase components from other manufacturers or produce them internally?
- Should the firm specialize in one type of product or diversify?
- How many units should be produced, and at what price should they be sold?
4
Q
Managerial Economics Defined
Introduction to decision-making
4 components
A
Components:
- Control variable (e.g., output)
- Benefits (e.g., revenues)
- Costs
- Net benefits (e.g., profit = revenue – costs)
5
Q
Marginal Analysis
What is its objective?
3 key terms
A
Objective:
- To maximize net benefits.
Key Terms:
- Marginal Benefit ((MB)): Change in total benefits from a change in the control variable.
- Marginal Cost ((MC)): Change in total costs from a change in the control variable.
- Marginal Net Benefits ((MNB)): (MB - MC)
6
Q
Using Marginal Analysis
What is the marginal principle?
Outcome?
A
Marginal Principle:
- To maximize net benefits, increase the control variable until marginal benefits equal marginal costs.
Outcome:
- At this point, marginal net benefits are zero; nothing more can be gained by further changes in that variable.
7
Q
Conclusion
What should you include?
What are made at the margin?
A
Key Takeaways:
- Include all costs and benefits when making decisions.
- Optimal economic decisions are made at the margin (marginal analysis)
