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47 Cards in this Set
- Front
- Back
The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal |
Managerial economics |
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A very broad discipline in that it describes methods used for directing everything from the resources of a household to maximize household welfare to the resources of a firm to maximize profit |
Managerial economics |
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An effective manager must: |
1. Identify goals and constraints 2. Recognize the nature and importance of profits 3. Understand incentives 4. Understand markets 5. Recognize the time value of money 6. Use marginal analysis |
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The total amount of money taken in from sales minus the dollar cost of producing goods or services |
Accounting profit |
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It is the first step in making sound decisions |
To have well defined goals |
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The difference between the total revenue and the total opportunity cost of producing the firm's goods or services |
Economic profits |
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Very hard to measure and therefore managers often overlook them |
Implicit costs |
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Two sides to every transaction in a market |
Buyer and seller |
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3 sources of rivalry that exist in economic transactions |
Consumer producer rivalry Consumer consumer rivalry Producer producer rivalry |
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Occurs because of the competing interests of consumers and producers |
Consumer producer rivalry |
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Reduces the negotiating power of consumers in the marketplace |
Consumer consumer rivalry |
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This disciplining device functions only when multiple sellers of a product compete in the marketplace |
Producer producer rivalry |
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The appropriate tool to use for when managers are faced with proposals that require a simple thumbs up thumbs down decision |
Marginal analysis |
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Additional revenues that stem from a yes or no decision |
Incremental revenues |
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Additional costs that stem from a yes or no decision |
Incremental costs |
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An individual who purchases goods and services from firms for the purpose of consumption |
Consumer |
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Represent the possible goods and services consumers can afford to consume |
Consumer opportunities |
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Determine which of these goods will be consumed |
Consumer preferences |
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Simply stated, it restricts consumer behavior by forcing the consumer to select a bundle of goods that is affordable |
The budget constraint |
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The bundles of goods a customer can afford |
Budget set |
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The bundles of goods that exhaust a consumer's income |
Budget line |
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The value of the output produced by the last unit of an input |
Value marginal product |
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The manager's role in guiding the production process: |
To ensure that the firm operates on the production function To ensure that the firm uses the correct level of inputs |
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When a firm acquires an input , it may incur costs in excess of the actual amount paid to the input supplier . These costs are known as: |
Transaction costs |
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Transaction costs include: |
1. The cost of searching for a supplier willing to sell a given input 2. The costs of negotiating a price at which the input will be purchased 3. Other investments and expenditures required to facilitate change |
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Costs associated with acquiring an input that are in excess of the amount paid to the input supplier |
Transaction costs |
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An expenditure that must be made to allow to parties to exchange but has little or no value and any alternative use |
Specialized investment |
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A type of exchange that occurs when the parties to a transaction have made specialized investments |
Relationship-specific exchange |
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Occurs when the buyer and the seller of an input must locate their plants close to each other to be able to engage and exchange |
Site specificity |
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Refers to a situation where the capital equipment needed to produce an input is designed to meet the needs of a particular buyer and can not be readily adapted to produce inputs needed by other buyers |
Physical asset specificity |
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General investments made by a firm that allow it to exchange with a particular buyer |
Dedicated assets |
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A fourth type of specialized investment where workers must learn specific skills to work for a particular firm |
Human capital |
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The bargaining process generally is costly , as it aside employs negotiators to obtain a more favorable price |
Costly bargaining |
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Specialized investments may be lower than optimal , resulting and higher transaction costs because the input produced is of inferior quality |
Underinvestment |
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Once a firm makes a specialized investment , the other party may attempt to "rob" it of its investment by taking advantage of the investment's sunk nature |
Hold-up problem |
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Pricing strategy in which higher prices are charged during peak hours than during off-peak hours |
Peak load pricing |
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Pricing strategy in which profits gain from the sale of one product are used to subsidize sales of a related product |
Cross subsidies pricing |
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Relevant in situations where a firm has cost complementary these and the demand by consumers for a group of products is interdependent. It uses profits made with one product to subsidize sales of another product |
Cross subsidies |
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Pricing strategy in which a firm optimally sets the internal price at which an upstream division sells an input to a downstream division |
Transfer pricing |
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A strategy in which a firm advertises a price and a promise to match any lower price offered by a competitor |
Price matching |
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Pricing strategy and which a firm intentionally varies its price in an attempt to hide price information from consumers and rivals |
Randomized pricing |
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Selfishly motivated efforts to influence another party's decision |
Rent seeking |
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A restriction that limits the quantity of imported goods that can legally enter the country |
Quota |
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Like quotas , are designed to limit foreign competition and the domestic market the benefit domestic producers |
Tariffs |
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Two types of tariffs: |
Lump sum tariffPer unit or excise tariff Per unit or excise tariff |
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A fixed fee that firms must pay the domestic government to be able to sell and domestic market |
Lump-sum Tariff |
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Requires the importing firms to pay the domestic government a fee on each unit they bring into the country |
Per-unit or excise tariff |