Managerial Economics

Question 1

application of economic theory and tools of analysis of
decision science to examine how an organization can achieve its aims or objectives most efficiently

Answer 1

Managerial Economics

Question 2

a science of directing scarce resources to manage cost effectively

Answer 2

managerial economics

Question 3

3 branches of economics

Answer 3

competitive market, market power and imperfect markets

Question 4

relationship to economic theory

Answer 4

organization can solve its management decision problems by the application of economic theory and the tools of decision science.

Question 5

is the study of economic behavior of individual decision-making units such as individual consumers, resource owners, & business firms in a free enterprise system

Answer 5

microeconomics

Question 6

study of the total/aggregate level of output, income, employment, and prices for the economy viewed as a whole.

Answer 6

macroeconomics

Question 7

seek to predict and explain economic behavior

Answer 7

economic theories

Question 8

usually begin with model & this abstracts from the many details surrounding & event and seeks to identify a few of the most important determinants of of the event

Answer 8

economic theories

Question 9

This use the tools of mathematical economics and econometrics to construct and estimate decision models aimed at determining the optimal behavior of the firm.

Answer 9

decision sciences

Question 10

used to formalize economic models postulated by economic theory

Answer 10

mathematical economics

Question 11

applies statistical tools to real-world data to estimate the models postulated by economic theory

Answer 11

econometrics

Question 12

includes accounting, finance, marketing,
human resource & production.

Answer 12

business administration

Question 13

Reasons for the Existence of Firms and
their Functions

Answer 13

Firms exist because it would be very inefficient and costly for the entrepreneurs to enter into and enforce contracts with workers and owners of capital, land, and other resources for each separate step of production and distribution process.
Such a general contract is much less costly than numerous specific contracts and is highly advantageous both the entrepreneurs and to the workers and other resource owners.

Question 14

organization that combines and organizes resources for
the purpose of producing goods and services for sale.

Answer 14

firms

Question 15

forms of business organizations exist in the economy

Answer 15

sole proprietorship, partnership, corporation, & cooperatives.

Question 16

the firm exist…

Answer 16

in order to save on such transaction costs.

Question 17

establishing a number of semiautonomous divisions

Answer 17

decentralizing

Question 18

Functions of the Firm

Answer 18

Purchase resources or inputs of labor service, capital, and
raw materials in order to transform them into goods and
services for sale.
Resource owners then use the income generated from the
sale of their service or other resources to firms to purchase
the goods and services produced by firms.

Question 19

Objective and Value of the Firm

Answer 19

 Managerial economics begins by postulating a theory
of the firm ,which it uses to analyze managerial decision making.
 The theory of the firm is based on the assumption that the goal or objective of the firm was to maximize current or short-term profits.
 Firms, however, are often observed to sacrifice short term profits for the sake of increasing future & longterm
profits.

Question 20

Since both short-term as well as long-terms profits are clearly important,

Answer 20

the theory of the firm now postulates that the primary goal
or objective of the firm is to maximize the wealth of the value of the
firm.

Question 21

Management decision problems arise in any organization-be it a firm, a not-for-profit organization (ex. hospitals, universities or government agency- when

Answer 21

it seeks to achieve some goal or objective
subject to some constraints it faces.

Question 22

may differ from case to case, but the basic
decision-making process is the same.

Answer 22

goals and contsraints

Question 23

Application- managerial economics applies to

Answer 23

a. Businesses-decisions in relation to customers including pricing and advertising ; suppliers; competitors or the internal workings of the organization, nonprofit
organizations and households

b. “Old economy” & “new economy” in essentially the same
way except for 2 distinctive aspects of the “new economy”:
the importance of network effects and scale scope economies

c. Network effects in demand-benefit provided by a service
depends on the total number of other users

Question 24

the degree to which scale and scope of a business can be
increased without a corresponding increase in cost.

Answer 24

Scale and scope economies scalability

Question 25

a company’s relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both

Answer 25

Market Power

Question 26

a company’s relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both

Answer 26

Market Power

Question 27

Occurs when numerous people compete with one another to produce goods and services to provide the consumers’ wants and needs

Answer 27

Competitive Market