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Manager
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A person who directs resources to achieve a stated goal.
-direct the efforts of others
-purchases inputs used in the production of the firm's output
-directs the product price or quality decisions
-direct the efforts of others
-purchases inputs used in the production of the firm's output
-directs the product price or quality decisions
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Economics
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the science of making decisions in the presence of scarce resources
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decisions are important because:
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scarcity implies trade-offs
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Managerial Economics
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The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal.
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Basic Principles compromising effective management:
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-ID goals and constraints
-recognize the nature and importance of profits
-understand incentives
-understand markets
-recognize the time value of money
-use marginal analysis
-recognize the nature and importance of profits
-understand incentives
-understand markets
-recognize the time value of money
-use marginal analysis
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Firms overall goal is:
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maximize profits
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Accounting Profit
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total revenue - explicit costs
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Economic Profit
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total revenue minus total cost, including both explicit and implicit costs (opp cost)
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Opportunity Cost
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explicit cost plus implicit cost of giving up best alt use of a resource
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Marginal Benefit
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The change in total benefits arising from a change in the managerial control variable, 𝑄.
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Marginal Cost
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The change in the total costs arising from a change in the managerial control variable, 𝑄.
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Marginal Principle
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to max net benefits, the manager should increase the managerial control variable up to the point where marginal benefits equal marginal costs.
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Incremental Revenues/Costs
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total difference in revenues/costs among two alternatives (yes or no decision)
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