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75 Cards in this Set
- Front
- Back
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Resources are _______ |
limited |
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Economics is the study of... |
making decisions in the presence of scarce resources. |
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____ are anything used to produce a good or service, or achieve a goal |
resources |
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What is scarcity? |
Scarcity means you cannot get all that you want because of limited resources and unlimited wants. This means having one thing means foregoing something else |
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What are the four different kinds of resources? |
labor Capital Material Managerial Talent |
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Why are decisions important? |
Because scarcity implies trade offs |
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What is the definition of managerial economics? |
The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal. |
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Managerial economics answers what three questions? |
Should a firm purchase components from other manufactures or produce them within the firm Should the firm specialize in making one type of computer or produce several different types? How many computers should the firm produce, and at what price should you sell them |
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What is termed the economics of a business is to determine the key factors that affect the ability of a firm... |
to earn an acceptable rate of return on its owners |
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What is the most important economic factors? |
competition, technology and customers |
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What is a manager? |
A manager is essentially a person who is responsible for the allocation of a firms' scarce resources |
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What is the managers main goal? |
To maximize profit. |
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Opportunity cost of using any resource is... |
What we must forego when we make that choice (the next best alternative) Used when making or analyzing decisions everything we actually sacrifice in making the choicethe methods of measuring opportunity cost differ for the various kinds of inputs used by business |
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What is the opportunity cost of using a resource? |
what firm owners must give up to use the resource |
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If you spend $10 million dollars that is earning 10% interest, to start a company, what is the alternative, or opportunity, costs? |
The 10% interest you would gain by keeping it in the bank, not the $10 million |
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Market supplied resources are __________ costs |
explicit |
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Market supplied resources are owned by... |
others and hired, rented or leased |
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Own supplied resources are owned and used by who? |
Owner supplied resources are owned and used by the firm |
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What are four examples of owner-supplied resources? |
time, equity, capital and land |
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Are owner supplied resources an example of implicit or explicit costs? |
Implicit |
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What is total economic costs? |
Sum of opportunity costs of both market-supplied resources and owner-supplied resources |
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What are explicit costs? |
Monetary payments to the owners of market-supplied resources |
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What are implicit costs? |
Nonmonetary opportunity costs of using owner-supplied resources |
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Markets are made up of who? |
Customers and producers |
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What happens in a market? |
Customers and producers buy and sell goods |
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_______ is a customers willingness and ability to pay |
demand |
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What does the demand curve depict? |
As price increases quantity demanded decreases |
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What does the supply curve depict? |
As price rises, the quantity a supplier is willing and able to supply increases as well. As price declines, the quantity a supplier is willing and able to supply decreases as well. |
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In market equilibrium, there is no... |
shortage or surplus |
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What are the three types of implicit costs listed in the notes? |
Opportunity cost of cash provided by owners Opportunity cost of using land or capital owned by the firm Opportunity cost of owner's time spent managing or working for the firm |
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What is equity capital? |
The opportunity cost of cash provided by owners |
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______ __________ states that profits are a signal to resource holders where resources are most highly valued by society. |
Profit principles |
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What is the formula of profit? |
Profit= Total revenue - total cost where total revenue = (P*Q) Therefore, profit= (P*Q) - TC |
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What is the definition of the term manager? |
The manager is the person who directs resources to achieve a stated goal |
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What are the three functions of the manager? |
Directs efforts of others Purchases inputs used in the production of the firm's outputs Directs the product price or quality decisions |
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What are the six basic principles comprising effective management? |
Identify goals and constaints Recognize the nature and importance of profits Understand what incentives will motivate employees Understand the markets (are you a price maker or price taker) Recognize the time value of money (will the value of a dollar today be worth the same amount as the value of a dollar tomorrow) Use marginal analysis |
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True or false. Incentives are always good. |
False. Incentives are not always good, they can also be negative |
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Within a firm, incentives impact how... |
resources are used and how hard workers work |
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Changes in profits provide an ___ to how resource holders use their resources. |
incentive |
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What are the two sides of a market transaction? |
Buyers and sellers |
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What are the goals of buyers and sellers? |
Buyers are trying to maximize satisfaction, while sellers are trying to maximize profit. |
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Bargaining position of consumers and producers is limited by three rivalries in economic transactions. What are those three types of rivalries? |
Consumer producer rivalry Consumer consumer rivalry Producer Producer Rivalry |
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Explain what a consumer producer rivalry is. |
Producers and sellers want higher prices, consumers want lower prices. |
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Explain what a consumer consumer rivalry is. |
When we have an auction and compete for a product based on price. |
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What is a producer producer rivalry? |
When producers compete in order to attract customers |
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What is the function of government in the market? |
They protect consumers and protect producers against rivals. |
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Often a gap exists between the time when... |
costs are borne and benefits are received |
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Managers can use ___ ____ ____ to properly account for the timing of receipts and expenditures |
present value analysis |
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Define the present value of a single future value. |
The amount that would have to be invested today at the prevailing interest rate to generate a given future value |
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What is the formula of a present value of a single future value? |
Present value= future value / (1+interest rate)^number of years |
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Present value reflects the difference between... |
The future value and the opportunity cost of waiting |
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What is the formula of present value of a stream of future values? |
Present value= (Future value 1/ (1+i)^1) + (Future value 2/(1+i)^2) + (Future value 3/(1+i)^3)..... |
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What is net present value? |
The present value of the income stream generated by a project minus the current cost of the project |
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What is the formula of net present value? |
NPV = (FV1/ (1+i)^1) + (FV2/ (1+i)^2) +.... + (FVn/ (1+i)^n) - Current cost |
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How do you choose whether or not a project is worth taking based on net present value? |
If NPV is negative, the project is not worth taking If the NPV is positive, the project is worth taking |
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Marginal analysis is also known as ____________ |
optimization |
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Optimization occurs when... |
The total distance between total revenue and total cost is the greatest |
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Managers objective is to maximize ______ ___________ during marginal analysis. |
net benefits |
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What is the formula for net benefits? |
Net benefits= Total Benefit (Q) - Total Cost (Q) |
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When is profit maximized? |
when marginal revenue= marginal costs |
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What is the formula of marginal revenue? |
Change in total revenue/ change in quantity |
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What is the formula of marginal costs? |
Change in total costs/ change in quantity |
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__________ ________ is the change in total benefits arising from a change in the managerial control of variable, Q |
Managerial Benefit |
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What is the formula for marginal net benefits? |
marginal net benefits= Marginal benefits- Marginal costs |
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What is the marginal principle? |
To maximize net benefits, the manager should increase the managerial control variable up to the point where marginal benefits equal marginal costs. This level of the managerial control variable corresponds to the level at which marginal net benefits are zero; nothing more can be gained by further changes in that variable |
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What is the marginal principle (calculus alternative)? |
Slope of a continuous function is the derivative/ marginal value of that function |
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The marginal principle (calculus alternative) says that marginal benefit= |
dB(Q)/dQ |
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The marginal principle (calculus alternative) says that marginal cost= |
Derivative of the cost function/ Derivative of quantity |
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What is the calculus alternative marginal net benefit? |
dN(Q)/dQ |
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How do you find net marginal benefit when using calculus? |
Find the derivative of the benefit function Find the derivative of the cost function Set both derivatives equal to one another and solve for Q |
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What are incremental revenues? |
The additional revenues that stem from a yes or no decision |
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What are incremental costs? |
The additional costs that stem from a yes or no decision |
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Make sure you include all _______ and ________ when making a decision |
costs and benefits |
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Optimal economic decisions are made at the ________ |
margin |
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When decisions span time, make sure you are using ______ _______ __________ |
present value analysis |
