Chapter 1: The Fundamentals of Managerial Economics – Flashcards
Flashcard maker : Richard Lattimore
Manager
a person who directs resources to achieve a stated goal
economics
the science of making decisions in the presence of scarce resources
managerial economics
the study of how to direct scarce resources in the way that most efficiently achieves a managerial goal
economic profits
the difference between total revenue and total opportunity cost
opportunity cost
the explicit cost of a resource plist the implicit cost of giving up its best alternative use
present value
the amount that would have to be invested today at the prevailing interest rate to generate the given future value
net present value NPV
the present value of the income stream generated by a project minus the current cost of the project
Profit maximization
maximizing the value of the firm, which is the present value of current and future profits
marginal benefit
the change in total benefits arising from a change in the managerial control variable Q
marginal cost
the change in total costs arising from a change in the managerial control variable Q
Incremental revenues
the additional revenues that stem from a yes-or-no decision
incremental costs
the additional costs that stem from a yes-or-no decision
Resources
simply anything used to produce a good or service or, more generally, to achieve a goal
constraint
is an artifact of scarcity
accounting profits
total amount of money takes in from sales minus the dollar cost of producing goods or services
implicit cost
very hard to measure and therefore managers often overlook them
explicit cost
or accounting cost
Five Forces Framework
Entry
Power of input suppliers
Power of Buyers
Industry Rivalry
Substitutes and Complements
(helps managers see the big picture)
Power of input suppliers
Power of Buyers
Industry Rivalry
Substitutes and Complements
(helps managers see the big picture)
incentives
affect how resources are used and how hard workers work
Consumer-Producer Rivalry
occurs because of the competing interests of consumers and producers
Consumer-Consumer Rivalry
reduces the negotiating power of consumers in the marketplace
Producer-Producer Rivalry
this discipling device functions only when multiple sellers of a product compete in the marketplace
Time value of money
the opportunity cost of receiving the $1 in the future is the forgone interest that could be earned were $1 received today
Present value (PV)
an amount received in the future is the amount that would have to be invested today at the prevailing interest rate to generate the given future value
Formula (Present Value)
FV / (1+i)^n
marginal analysis
states that optimal managerial decisions involve comparing the marginal (or incremental) costs
