question
Define Manager
answer
the person who directs resources to reach a certain goal
question
What are 3 actions of a manager?
answer
1. Directs the efforts of others.
2. Purchases inputs used in the production of the firm's output.
3. Directs other decisions, such as, the product price and quality.
2. Purchases inputs used in the production of the firm's output.
3. Directs other decisions, such as, the product price and quality.
question
Define Economics
answer
making decisions in the presence of scarce resources
question
Define Managerial Economics
answer
The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal
question
What are the 7 principles of effective management?
answer
1.Identify goals and constraints
2.Recognize the nature and importance of profits
3.Understand incentives
4.Understand markets
5.Recognize the time value of money
6.Use marginal analysis
7.Make data driven decisions
2.Recognize the nature and importance of profits
3.Understand incentives
4.Understand markets
5.Recognize the time value of money
6.Use marginal analysis
7.Make data driven decisions
question
What is a firms overall goal?
answer
to maximize profits
question
When might constraints be a good thing?
answer
they can lead to a creative solution
question
Define accounting profit
answer
total amount of money taken in from sales (total revenue) minus the dollar cost of producing goods or services.
question
Define economic profit
answer
the difference between total revenue and total opportunity cost.
question
Define opportunity cost
answer
The explicit cost of a resource plus the implicit cost of giving up its best alternative.
question
What are the 5 forces of profitability
answer
1. entry
2. Buyers
3. Input suppliers
4. rivalry in industry
5. substitutes and complements
2. Buyers
3. Input suppliers
4. rivalry in industry
5. substitutes and complements
question
how can a manager use the present value of money
answer
they can use present value analysis to properly account for the timing of receipts and expenditures
question
What is the present value for a single future value
answer
The amount that would have to be invested today at the prevailing interest rate to generate the given future value
question
when searching for present value, what happens if 'I' = 1
answer
PV must = FV
question
what is the Net present value
answer
The present value of the income stream generated by a project minus the current cost of the project
question
what if the NPV is great than 0
answer
accept the project!
question
what if the NPV is less than 0
answer
do not do the project
question
what is the cash flow divided by the interest
answer
present value of perpetuity
question
define profit maximization
answer
maximizing the value of the firm, which is the present value of current and future profits.
question
define marginal benefit
answer
The change in total benefits arising from a change in the managerial control variable, Q
question
define marginal cost
answer
The change in the total costs arising from a change in the managerial control variable, Q
question
what is the marginal benefit less marginal cost
answer
marginal net benefit
question
what is the slope of the total benefit curve
answer
marginal benefit
question
what is the slope of the total cost curve
answer
marginal cost
question
What does the market demand curve illustrate?
answer
A relationship between the total quantity and price per unit of a good all consumers are willing and able to purchase, holding other variables constant
question
Define law of demand
answer
quantity of a good demanded by buyers increases as its price decreases
question
what is the only thing that can change the quantity demanded?
answer
Price... it moves along the curve
question
What good is demanded more when there is an increase in income?
answer
normal good
question
What good is demanded less when there is an increase in income?
answer
inferior good
question
what is the demand function?
answer
When good X is describing how many units will be purchased at different prices for X, the price of a related good Y, income and other factors that affect the demand for good X.
question
define consumer surplus
answer
extra value a consumer derives from a good but do not pay extra for
question
As the price of a good rises (falls), the quantity supplied of the good rises (falls), holding other factors affecting supply constant
answer
law of supply
question
on a supply curve, what does an excise tax do to price and quantity
answer
moves the price up, shifts the quantity down
question
on a supply curve, what does an ad valorem tax do?
answer
it rotates the curve/ it will hinge
question
define the supply fucntion
answer
good X is a mathematical representation describing how many units will be produced at alternative prices for X, alternative input prices W, and alternative values of other variables that affect the supply for good X.
question
the amount producers receive in excess of the amount necessary to induce them to produce the good.
answer
producer surplus
question
what is own price elasticity of demand?
answer
It Measures the responsiveness of a percentage change in the quantity demanded of good X to a percentage change in its price
question
Is demand elastic or not when price increase (decrease) leads to a decrease (increase) in total revenue?
answer
demand is elastic
question
when is a good inelastic
answer
A price increase (decrease) leads to an increase (decrease) in total revenue.
question
what happens to inelasticity when Customers do not respond at all to changes in price
answer
considered to be perfectly Inelastic
question
what does it mean to be perfectly elastic?
answer
Customers will buy none of that good if the price is raised at all
question
what measures the responsiveness of a percent change in demand for good X due to a percent change in the price of good Y?
answer
cross price elastcity
question
What is the indifference curve?
answer
A curve that defines the combinations of two goods that give a consumer the same level of satisfaction
question
define the marginal rate of substitution
answer
rate at which a consumer is willing to substitute one good for another and maintain the same satisfaction level
question
Consumer is capable of expressing preferences (or indifference) between all possible bundles. I do not know is not an option.
answer
completness property
question
Bundles that have at least as much of every good and more of some good are preferred to other bundles
answer
more Is better property
question
define budget set
answer
defines the combinations of goods X and Y that are affordable for the consumer
question
defines all combinations of goods X and Y that exactly exhaust the consumer's income
answer
budget line
question
the slope of the indifference curve
answer
marginal rate of substitution
question
the slope of a line
answer
market rate of substitution
question
define consumer equilibrium
answer
a consumption bundle that is affordable and yields the greatest satisfaction to the consumer
question
if Income increases (decreases) then what happens to a consumers budget set?
answer
reduces (expand) a consumer's budget set
question
movement along a given indifference curve that results from a change in the relative prices of goods, holding real income constant.
answer
substitution effect
question
The movement from one indifference curve to another that results from the change in real income caused by a price change
answer
income effect
question
Which of the following is true?
A. Indifference curves may intersect.B. At a point of consumer equilibrium, the MRS equals 1.C. If income increases, a consumer will always consume more of a good.D. None of the statements associated with this question are correct.
A. Indifference curves may intersect.B. At a point of consumer equilibrium, the MRS equals 1.C. If income increases, a consumer will always consume more of a good.D. None of the statements associated with this question are correct.
answer
D. None of the statements associated with this question are correct.
question
The absolute value of the slope of the indifference curve at the equilibrium bundle is called the: A. marginal revenue.B. average rate of substitution.C. marginal rate of substitution.D. marginal cost.
answer
C. marginal rate of substitution
question
If a consumer's income decreases, what will happen to the budget line? A. It will shift outward.B. It will become steeper.C. It will become flatter.D. It will shift inward.
answer
D. It will shift inward.
question
define the production function
answer
Mathematical function that defines the maximum amount of output that can be produced with a given set of inputs
question
what happens in the short run?
answer
factors of production (inputs) are fixed and constrain a manager's decisions.
question
what happens in the long run?
answer
all factors of production (inputs) are variable and can be adjusted by a manager
question
define total product
answer
Maximum level of output that can be produced with a given amount of inputs.
question
A measure of the output produced per unit of input. can look at labor and or capital
answer
average product
question
define a marginal product
answer
A change in total product (output) attributable to the last unit of an input.
question
The value of the output produced by the last unit of an input.
answer
value marginal product
question
define the law of diminishing returns
answer
The value of an additional unit of output will at some point be lower than the marginal product of the previous unit.
question
describe the assumptions of a linear production function
answer
assumes a perfect linear relationship between all inputs and total output
question
describe the assumptions Leontief production function
answer
Assumes that inputs are used in fixed proportions
question
the production function that assumes some degree of substitutability among inputs
answer
the Cobb Douglas production function
question
what do isoquants capture?
answer
capture the tradeoff between combinations of inputs that yield the same output in the long run, when all inputs are variable
question
what is it called at the rate at which a producer can substitute between two inputs and maintain the same level of output
answer
Marginal rate of technical substitution (MRTS)
question
what is the slope of an isoquant?
answer
marginal rate of technical substitution
question
what does cost minimization look to do?
answer
produce at cheapest possible cost
question
what rule looks to produce at a given level of output where the marginal product per dollar spent is equal for all inputs
answer
cost minimizing input rule
question
do fixed costs exist in the long run?
answer
no, but they do in the short run
question
What is a cost that does not change with output.
answer
fixed cost
question
what is a sunk cost?
answer
a cost that is forever lost after it has been paid.
question
are fixed costs or sunk costs ignored when maximizing profit/minimizing losses?
answer
sunk costs are ignored
question
A curve that defines the minimum average cost of producing alternative levels of output allowing for optimal selection of both fixed and variable factors of production
answer
long run average cost curve
question
The Leontief production function implies: A. Straight line isoquants. B. Convex shaped isoquants. C. A positive MRTS. D. L-shaped isoquants.
answer
D. L-shaped isoquants.
question
Isoquants are normally drawn with a convex shape because: A. Inputs are perfectly substitutable. B. Inputs are perfectly complementary. C. Inputs are not perfectly substitutable. D. Inputs are not perfectly complementary.
answer
C. Inputs are not perfectly substitutable
question
what is the most important role for a manager?
answer
producing at minimum cost
question
What is known as an informal relationship between a buyer and seller in which neither party is obligated to adhere to specific terms for exchange?
answer
spot exchange
question
define contract
answer
a formal relationship between a buyer and seller that obligates the buyer and seller to exchange at terms specified in a legal document.
question
what is it called when a situation arrises wherein a firm produces the inputs required to make its final product.
answer
vertical integration
question
what is the basic action of vertical integration?
answer
producing inputs internally
question
what is a major draw back of spot exchange?
answer
can lead to a hold up problem
question
define transaction cost
answer
the cost associated with acquiring an input that is in excess of the amount paid to the input supplier.
question
the expenditure that must be made to allow two parties to exchange but has little or no value in any alternative use.
answer
specialized investment
question
define site specificity
answer
sites must be close together to form a specialized investment
question
what is the word for capital equipment needed to produce an input is designed to meet the needs of a particular buyer and cannot be readily adapted
answer
physical asset specificity
question
dedicated assets is similar to what?
answer
very similar to physical-asset specificity but more general investments
question
workers who learn specific, non- transferable skills for a firm
answer
human capital
question
When specialized investments are required to facilitate exchange, transaction costs increase due to what 3 things?
answer
costly bargaining
under investment
opportunism/the hold up problem
under investment
opportunism/the hold up problem
question
what cost minimizing method is most likely when there is no relationship specificity?
answer
Spot exchange
question
What cost minimizing method is most likely with high relationship specificity
answer
Contract
question
What cost minimizing method is most likely with high relationship specificity, low trust, high complexity
answer
vertical integration
question
what is the principal agent problem ?
answer
if the owner is not present to monitor the manager, how can she/he get the manager to do what is in her best interest?
question
what are the 2 manager economic tradeoffs?
answer
labor and leisure
question
true or false: The optimal method for acquiring inputs depends on the nature of the transaction costs and specialized nature of the inputs being produced.
answer
true
question
true or false: to overcome the owner-manager and manager-worker principal-agent problems, principals must align the agents' interests with the principals' interests.
answer
true
question
Which of the following is not a means of avoiding opportunism? A. contracts. B. spot exchange. C. vertical integration. D. long-term contracts.
answer
B. spot exchange
question
A relationship-specific exchange occurs when A. a partnership is dissolved. B. specialized investments are important. C. a partnership is initiated. D. shareholders receive dividends.
answer
B. specialized investments are important.
question
Transactions costs refer to A. fixed costs of capital. B. variable costs of labor. C. costs of exchange unrelated to production costs. D. economies of scale.
answer
C. costs of exchange unrelated to production costs
question
Hold-up...
A. is a hazard associated with relationship-specific exchange. B. mitigates worker shirking. C. makes spot exchange efficient. D. solves the principal-agent problem
A. is a hazard associated with relationship-specific exchange. B. mitigates worker shirking. C. makes spot exchange efficient. D. solves the principal-agent problem
answer
A. is a hazard associated with relationship-specific exchange
question
Long term contracts are generally preferable to A. spot markets. B. short-term contracts. C. vertical integration. D. none of the statements associated with this question are correct.
answer
D. none of the statements associated with this question are correct.
question
Which of the following is the primary disadvantage of producing inputs within a firm? A. increases in transaction costs. B. loss of specialization. C. reductions in opportunism. D. mitigation of hold-up problems.
answer
B. loss of specialization.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
