Managerial Economics

The second question relates to how to produce goods and services. The firm has now to choose among different ___________________ of production.

• alternative techniques

Profits as shown on financial statements.

• Accounting Profit

This is when an economy is efficient if all assets are employed in their highest-value uses.

• Efficient

Costs that you get back if you shut down operations

• Avoidable Costs

When average costs are constant with respect to output level.

• Constant Returns To Scale

A pre-contractual problem that arises from hidden information about the risks, quality, or character.

• Adverse Selection

The differences in wages that reflect differences in the inherent attractiveness of various professions

• Compensating Wage Differentials

The bidders submit increasing bids until only one bidder remains.

• English Auction (Oral Auction)

Decision making in managerial economics generally involves establishment of firm’s objectives, identification of problems involved in achievement of those objectives, development of various alternative solutions, and finally, selection of best alternative.

• False

This is a demand curve on which percentage change in quantity is smaller than percentage change in price (insensitive to price).

• Inelastic

Managerial economics helps in decision-making as it involves _______________.

• logical thinking

A demand curve on which percentage quantity changes more than percentage price (sensitive to price).

• Elastic

This is the third question in solving issues using managerial economics.

• Who should consume and claim the goods and services produced by the firm?

Theory of firm states that the primary aim of the firm is to minimize wealth.

• False

The amount you need to sell to make zero profit

• Break-Even Quantity

Trigonometry is defined as use of statistical tools for assessing economic theories by empiricallymeasuring relationship between economic variables.

• False

This measures the percentage change in demand arising from a percentage change in income.

• Income Elasticity of Demand

Managerial Economics deals with allocating the scarce resources in a manner that minimizes the

• cost

This includes recognition of implicit costs (EX: cost of equity capital).

• Economic Profit

Something that affects demand and which the company can change (EX: Price, Advertising, Product Quality).

• Controllable Factor

What method is when the firm makes an effort to obtain the opinion of experts who have long standing experience in the field of enquiry related to the product under consideration?

• Sample Survey
• panel consensus
• Delphi method
• Expert Opinion Method

The consumer demand (purchase) more as price falls (i.e. demand curves slope downward), assuming other factors are held constant.

• First Law of Demand

What is the second method used for long-term forecasting?

• qualitative
• quantitative
• descriptive
• statistical

The additional costs that do not appear on the financial statement of a company (EX: Opportunity Cost of Capital).

• Implicit Costs

The situation where parties have competing goals (EX: principal-agency relationships).

• Incentive Conflict

While microeconomics is the study of decisions made regarding the allocation of resources andprices of goods and services, ___________________ is the field of economics that studies thebehavior of the economy as a whole (i.e. entire industries and economies).

• macroeconomics

The ______________________ examines consumer behavior with respect to the kind of purchases they would like to make currently and in future.

• demand theory

The first question relates to what ____________________ should be produced and in what amount/quantities.

• goods and services

This experience leads to learning meaning that current production lowers future costs.

• Learning Curves

This is the price at which quantity supplied equals quantity demanded.

• Market Equilibrium

The amount that one unit contributes to profit.

• Contribution Margin

This is when the company where various divisions perform separate tasks, such as production and sales.

• Functionally Organized Firm

Cost incurred in principal-agent relationships.

• Agency Costs

As you try to expand output, your marginal productivity (extra output associated with extra inputs) eventually declines.

• Law of Diminishing Marginal Returns

This curves that describe buyer behavior and tell you how much consumers will buy at a given price.

• Demand Curves

What refers to the variations caused by weather patterns, social habits?

• Seasonal Variations
• Cyclical Fluctuation
• Secular Trend
• Random Fluctuation

This demand decreases as income increases.

• Inferior Goods

The good whose demand increases when the price of another good decreases (EX: Parking Lot & Shopping Mall).

• Complement

This exists when the cost of producing two products jointly is more than the products cost of producing those two separately.

• Diseconomies of Scope (Decreasing Returns to Scale)

This measures the percentage change in demand of Good A by a percentage change in the price of Good B.

• Cross-price Elasticity of Demand

Managerial economics uses both Economic theory as well as Econometrics for rational managerial decision making.

• True

Costs that appear on financial statements.

• Accounting Costs

Managerial Economics deals with allocating the scarce resources in a manner that minimizes the ______________.

• cost

The practice of offering multiple goods for sale as one combined product.

• Bundling

Managerial Economics is associated with the economic theory which constitutes “TheoryofFirm”.

• True

This is the practice of blocking competitors from participating in a market.

• Exclusion

The differences in wages that reflect differences in the inherent attractiveness of various professions (once equilibrium is reached).

• Compensating Wage Differentials

This exists when the cost of producing two products jointly is more than the cost of producing those two products separately.

• Diseconomies of Scope (Decreasing Returns to Scale)

This is a division whose parent company rewards it for reducing the cost of producing a specified output.

• Cost Center

This occurs when you ignore relevant costs, i.e. costs that do vary with the consequences of your decision.

• Hidden-Cost Fallacy

Managerial Economics is a__________________ dealing with effective use of scarce resources. It guides the managers in taking decisions relating to the firm’s customers, competitors, suppliers as well as relating to the internal functioning of a firm.

• math
• communication
• civics
• science

Price that you must charge to make zero profit.

• Break-Even Price

total cost of production ÷ the # of units produced

• Average Cost

If an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is used; i.e. it will make the same profit no matter where it goes

• Indifference Principle

When able to identify low-value groups, charge them a lower price, and prevent them from reselling lower-priced goods to the higher-value group.

• Direct Price Discrimination Scheme

The use of Managerial Economics is not limited to profit-making firms and organizations; but it can also be used to help in ______________________ of non-profit organizations (hospitals, educational institutions, etc).

• decision-making process

Something that affects demand and which the company can change (EX Price, Advertising, Product Quality).

• Controllable Factor

This exists when long-run average costs fall as output increases.

• Economies of Scale (Increasing Returns to Scale)

What analysis is used to estimate future demand?

• Regression Analysis
• Index Numbers
• Exponential Smoothing
• Time Series Analysis

What refers to the long run increase or decrease in the series?

• Seasonal Variations
• Random Fluctuation
• Secular Trend
• Cyclical Fluctuation

This additional cost incurred by producing and selling one more unit.

• Marginal Cost

Decision making in managerial economics generally involves establishment of firm’s objectives, identification of problems involved in achievement of those objectives, development of variousalternative solutions, and finally, selection of best alternative.

• False

This is the decision of how much or how many of a product to produce.

• Extent Decision

The value of the item being auctioned is the same for each bidder, none are aware what that value is (ex: Oil Drilling).

• Common-Value Auction