Week 1 - Intro to Bus Econs Flashcards
What is business economics?
Applying economic theory to explain behaviours of firms and customers
Considering their environment and the impact of their decisions
What are the three stages of decision-making?
- External influences of the firm
- Internal decisions of the firm
- The effects of the firm’s decision
What are external influences and how can they be analysed?
External influences are factors that are outside the firm’s control
They are analysed using a P.E.S.T analysis
What is P.E.S.T and how is it used
P.E.S.T analysis is used to gauge the influences of:
P: Political and legal factors
E: Economic Factors
S: Social and cultural factors
T: Technological factors
Stage 1.
Identify and label external factors as a threat or opportunity
Stage 2.
Rank in order of largest impact on firm
Stage 3.
Rank in order of most important
What are internal decisions?
What are some examples?
Internal decisions are factors that a firm can control
Examples: Prices, Quantity, Investments
What are external effects?
The effects that the firm’s internal decisions have on others
Examples: customers, environments
Who gets paid etc.
What is the economic problem?
How to use limited resources to serve unlimited wants
What are opportunity costs?
The next best forgone opportunity
What are explicit costs?
The direct payment of money
What are implicit costs?
What the firm could earn using the resources it already owns
What are accounting profits?
Accounting profit = Revenue - Cost
What are normal profits?
Normal profits = opportunity cost of capital
Normally considered a part of total cost
What is economic profit?
Economic profit:
Total revenue - total costs
What are total costs?
Total costs:
Explicit costs + Implicit costs
How is profit maximisation measured?
MR = MC
