Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
27 Cards in this Set
- Front
- Back
|
CH.1 Manager |
A person who directs resources to achieve a stated goal
|
|
|
CH.1Economics |
The science of making decisions in the presence of scarce resources. |
|
|
CH.1Managerial Economics |
The study of how to direct scarce resources in the way that most efficientlyachieves a managerial goal
|
|
|
CH.1Identify Goals and Constraints
|
–Leads to making the “right” decisions. –Constraints are an artifact of scarcity. |
|
|
CH.1Economic vs. Accounting Profits
|
Total revenue (sales) minus dollar cost of producing goods or services. Reported on the firm’s income statement –Total revenue minus total opportunity cost. |
|
|
CH.1Economic vs. Accounting Costs
|
§AccountingCosts –The explicit costs of the resources needed to produce goods or services. –Reported on the firm’s income statement. § Opportunity Cost –The cost of the explicit and implicit resources that are foregonewhen a decision is made. §EconomicProfits –Total revenue minus total opportunity cost. |
|
|
CH.1Explain the role of profits in a market economy
|
§Profits signal to resource holders where resources are most highly valued by society. –Resources will flow into industries that are most highly valued by society. |
|
|
CH.1Apply the five forces framework to analyze the sustainability of an industry's profits
|
Entry - heightens competition and reduces the margins of existing firms in a wide variety of industry settings Power of Input Suppliers - Industry profits tend to be lower when suppliers have the power to negotiate favorable terms for their inputs Power of buyers - industry profits tend to be lower when customers or buyers have the power to negotiate favorable terms for the products or services produced in the industry Industry Rivalry - Tends to be less intense in concentrated industries - that is, those with relatively few firms Substitutes and Complements - price and value of interrelated products |
|
|
CH.1Incentives
|
Incentives determine: –How resources are utilized. –How hard individuals work. |
|
|
CH.1Consumer-ProducerRivalry |
–Consumers attempt to locate low prices, while producers attempt to charge high prices. |
|
|
CH.1Consumer-ConsumerRivalry |
–Scarcity of goods reduces consumers’ negotiating power as they compete for the right tothose goods. |
|
|
CH.1Producer-ProducerRivalry |
–Scarcity of consumers causes producers to compete with one another for the right toservice customers. |
|
|
CH.1Market Interactions - The Role of Government
|
Disciplines the market process. |
|
|
CH.1Present value (PV)
|
future value (FV)lump-sum amount to be received at the end of “n” periods in the future when theper-period interest rate is “i” The present value (PV) reflects the difference between thefuture value and the opportunity cost of waiting (OCW). As I increases, the higher is the OCWand the lower the PV. |
|
|
CH.1Net Present Value
|
Suppose a manager can purchase a stream of future receipts (FVt ) by spending “C0” dollars today If NPV < 0: Reject project NPV> 0: Accept project |
|
|
CH.1Perpetuity
|
An asset that perpetually generates a stream of cash flows (CFi) at the end of each period is called a perpetuity. |
|
|
CH.1Profit Maximization
|
This means the present value of current and future profits, so the firm ismaximizing its value
|
|
|
CH.1Marginal (Incremental) Analysis
|
states that optimal managerial decisions involve comparing the marginal (orincremental) benefits of a decision with the marginal (or incremental) costs
|
|
|
CH.1Marginal Benefit (MB)
|
Change in total benefits arising from a change in the control variable, Q |
|
|
CH.1MarginalCost (MC)
|
Change in total costs arising from a change in the control variable, Q
|
|
|
CH.1To maximize net benefits?
|
the managerial control variable should be increased up to the point where MB= MC
|
|
|
CH.1MB > MC ?
|
means the last unit of the control variable increased benefits more than it increasedcosts. |
|
|
CH.1MB < MC ?
|
means the last unit of the control variable increased costs more than it increasedbenefits. |
|
|
CH.1Incremental Revenue
|
The additional revenues that stem from a yes-or-no decision
|
|
|
CH.1Incremental Costs
|
The additional costs that stem from a yes-orno decision
|
|
|
CH.1Thumbs up decision? Thumbs down Decision? |
MB>MC MB |
|
|
CH.1 Implicit Costs
|
Implicit Cost to a Firm that Produces a Good or a Service –Forgone profits of producing a different good or service |
