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Definition
| The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal. |
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| Total revenue minus total cost |
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| Total revenue minus total opportunity cost. |
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The explicit costs of the resources needed to produce produce goods or services.
Reported on the firm’s income statement. |
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| The cost of the explicit and implicit resources that are foregone when a decision is made. |
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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. |
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| Consumer-Producer Rivalry |
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Definition
| Consumers attempt to locate low prices, while producers attempt to charge high prices. |
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| Consumer-Consumer Rivalry |
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Definition
| Scarcity of goods reduces the negotiating power of consumers as they compete for the right to those goods. |
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| Producer-Producer Rivalry |
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| Scarcity of consumers causes producers to compete with one another for the right to service customers |
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| Disciplines the market process. |
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Future Value of a sum (one time payment)
Example: Deposit $256 at an 8% interest rate, how much can you withdraw in 1 year, 2 years, 16 years |
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Definition
FV1 = 256+256(0.08) = $276.48
FV2 = 256+256(0.08)+256(0.08)+256(.08).08
= 256+20.48+20.48+1.64 = $298.60
= 256(1+.08)2 = $298.60
FV16 = 256(1+.08)16 = $877.04 |
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Present value of a lump sum
Example: Expect to receive $100 in EIGHT years. If can invest at 10%, what is it worth today? |
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Definition
| PV = 100/((1+.1)^8) = 46.65 |
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| Change in total benefits arising from a change in the control variable, Q |
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| Change in total costs arising from a change in the control variable, Q: |
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To maximize net benefits, the managerial control variable should be increased up to the point where MB = MC.
MB > MC means the last unit of the control variable increased benefits more than it increased costs.
MB < MC means the last unit of the control variable increased costs more than it increased benefits. |
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| As more firms exit an industry |
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Definition
| economic profits increase |
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| To maximize profits, a firm should increase production of a good until... |
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Definition
| marginal revenue = marginal cost |
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Term
| Under producer-producer rivalry, individual firms want to sell the product at the maximum price consumers will pay, but are unable to do this because of: |
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Definition
| competition among sellers. |
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| If marginal benefits is less than marginal costs, it is profitable to: |
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In a competitive market, the market demand is Qd = 80 - 8P and the market supply is
Qs = 20 + 2P. A price ceiling of $2 will result in a |
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