Introduction to Managerial Economics Flashcards
(35 cards)
1
Q
Basic Principles of Effective Management
A
- Identify goals and constraints
- Recognize the nature and importance of profits
- Understand Incentives
- Understand Markets
- Recognize the time value of money
- Use of marginal analysis
2
Q
Manager
A
-a person responsible for controlling and administering to achieve a stated goal.
3
Q
Economics
A
- a science of making decision in the presence of scarce resources.
4
Q
Resources
A
- anything used to produce goods or services
5
Q
Managerial Economics
A
- study of how to direct scarce resources in the way the most efficiently achieves a managerial goal.
6
Q
Goals
A
- something that a management hoped to achieve.
7
Q
Constraints
A
Limitation
8
Q
Profit
A
= Company’s Revenue - Expenses
9
Q
Accounting Profit
A
- total money taken in from sales minus the cost of producing the goods or services
AP= Total Revenue - Total Expenses
10
Q
Economic Profit
A
- difference between the total revenue and the total opportunity cost of producing goods or services
EP= Total Income - Total Expenses - Opportunity Lost Cost
11
Q
Opportunity Cost
A
- cost of the explicit and implicit resources that are foregone when decision is made.
12
Q
Explicit Cost
A
- out-of-pocket- costs of a firm.
13
Q
Implicit Cost
A
- opportunity cost of resources already owned by the firm and used in business.
14
Q
Incentive
A
- anything that motivates a person to do something.
15
Q
Economic Incentives
A
- financial motivations for people to take certain actions.
16
Q
Intrinsic Incentives
A
- do something for its own sake
- feeling of personal fulfillment and satisfaction that people get from doing certain things.
17
Q
Extrinsic Incentives
A
- involve providing material reward for accomplishing task.
18
Q
Two sides of every transaction in a market
A
- For every buyer of a good, there is a seller.
19
Q
Consumer - Producer Rivalry
A
- competing interest of consumers and producers.
- consumers attempt to negotiate low prices while producers attempt to negotiate high prices.
20
Q
Consumer - Consumer Rivalry
A
- scarcity of goods reduces consumers’ negotiating
power as they compete for the right to those goods.
21
Q
Producer - Producer Rivalry
A
- given that customers are scarce, producers compete with one another for the right to service the customers available.
22
Q
Present Value
A
- amount that would have invest today at the prevailing interest rate to generate given future value.
23
Q
Net Present Value
A
- present value of the income stream generated by a project minus the current cost of the project.
24
Q
Marginal Analysis
A
- optimal managerial decision involve comparing marginal benefits with the marginal costs.
25
Marginal Benefits
- the change in total benefits arising from a change in the managerial control variable.
26
Marginal Costs
- the change in total costs arising from a change in the managerial control variable Q.
27
MB = MC
- maximize net benefits, the managerial
control variable should be increased up to
the point
28
MB > MC
- last unit of the control
variable increased benefits more than it increased costs.
29
MB < MC
- last unit of the control variable increased costs more than it increased benefits.
30
Five Forces Framework
- Entry
- Power of input suppliers
- Power of buyers
- Industry Rivalry
- Substitute and complements
31
Entry
- new entrants to its market
32
Power of Input Suppliers
- supplier's gain power if they can increase their prices easily, or reduce the quality of their product.
33
Power of Buyers
- buyers have the power to influence price and the quantity of the products sold.
34
Industry Rivalry
- number of competitors and their ability to undercut a company.
35
Substitute and Complements
- level and sustainability of industry's profits also depend on the price and value of interrelated products and services.
