Managerial Economics chapter 1 terms

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business practices or tactics
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routine business decisions managers must make to earn the greatest profit under the prevailing market conditions facing the firm
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industrial organization
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branch of microeconomics focusing on the behavior and structure of firms and industries
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strategic decisions
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business actions taken to alter market conditions and behavior of rival in ways that increase and/or protect the strategic firm’s profit
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opportunity cost
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what a firm’s owners give up to use resources to produce goods or services
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market-supplied resources
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resources owned by others and hired, rented, or leased in resource markets
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owner supplied resources
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resources owned and used by a firm
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total economic cost
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sum of opportunity costs of market supplied resources plus opportunity costs of owner supplied resources
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explicit costs
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monetary opportunity costs of using market supplied resources
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implicit costs
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non monetary opportunity costs of using owner supplied resources
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equity capital
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money provided to businesses by the owners
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economic profit
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the difference between total revenue and total economic cost
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value of a firm
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the price for which the firm can be sold, which equals the present value of future profits
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risk premium
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an increase in the discount rate to compensate investors for uncertainty about future profits
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moral hazard
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exists when either party to an agreement has an incentive not to abide by all provisions of the agreement and one party cannot cost effectively monitor the agreement
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price taker
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a firm that cannot set the price of the product it sells, since price is determined strictly by the market forces of demand and supply
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price-setting firm
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a firm that can raise its price without losing all of its sales
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market power
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a firm’s ability to raise price without losing all sales
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market
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any arrangement through which buyers and sellers exchange anything of value
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transaction cost
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costs of making a transaction happen, other than the price of the good or service itself
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market structure
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market characteristics that determine the economic environment in which a firm operates
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globalization of markets
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economic integration of markets located in nations around the world

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