- A person who directs resources to achieve a stated goal. - The science of making decisions in the presence of scarce resources.
|
|
- Henry Foster
- 6 years ago
- Views:
Transcription
1 The Fundamentals of Managerial Economics: Overview Basic premise of this course: Study managerial decisions as they relate to maximizing profits, or more generally, the value of the firm. Fundamental principles for effective management: 1. Identify goals and constraints 2. Recognize the role of profits 3. Understand incentives 4. Understand markets 5. Recognize the time value of money 6. Use marginal analysis Managerial Economics I Manager - A person who directs resources to achieve a stated goal. I Economics - The science of making decisions in the presence of scarce resources. I Managerial Economics - The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal. 14/38
2 Identify Goals and Constraints I Sound decision making involves having well-defined goals. - Leads to making the right decisions. I For example, goal of maximizing profits requires manager to: - decide on optimal price of product - how much to produce - which technology to use - how much of each input to use - how to react to decisions made by competitors -... I In striking to achieve a goal, we often face constraints. - Constraints are an artifact of scarcity. 15/38 Economic vs. Accounting Profits I Accounting Profits - Total revenue (sales) minus dollar cost of producing goods or services. - Reported on the firm s income statement. I Economic Profits - Total revenue minus total opportunity cost. 16/38
3 Opportunity Cost I Accounting Costs - The explicit costs of the resources needed to produce goods or services. - Reported on the firm s income statement. I Opportunity Cost - The cost of the explicit and implicit resources that are foregone when a decision is made. - Implicit cost: the cost of giving up the best alternative use of the resource I Economic Profits - Total revenue minus total opportunity cost. Example I Suppose you own a building to run a restaurant and food supplies are the only accounting costs. - At the end of the year, costs for food $20k and revenues $100k - Hence accounting profits are $80k but these overstate your economic profits. I Here opportunity cost is - Cost of your time (you could have worked for somebody else, earning, say $30k) - Cost of capital (you could have rented the building, earning, say $100k) I Economic profits are then negative, i.e. you should not run the business - $50 = $100k $20k $30k $100k 18/38
4 Profits as a Signal 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. A common misperception is that the firm s goal of maximizing profits is necessarily bad for profits - Adam Smith, The Wealth of Nations: It is not out of the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. - Individuals (firms and households) pursuing their self-interest, maximizes total welfare of society (very influential paradigm in economics, in reality unclear whether it holds or not) 8 Understanding Firms Incentives Changes in profits provide incentives to alter use of resources. Incentives play an important role within the firm. Incentives determine: - How resources are utilized. - How hard individuals work. Managers must understand the role incentives play in the organization. Constructing proper incentives will enhance productivity and profitability. 21/38 22/38
5 Market Interactions Consumer-Producer Rivalry - Consumers attempt to locate low prices, while producers attempt to charge high prices. Consumer-Consumer Rivalry - Scarcity of goods reduces consumers negotiating power as they compete for the right to those goods. Producer-Producer Rivalry - Scarcity of consumers causes producers to compete with one another for the right to service customers. The Role of Government - Disciplines the market process. 22/38
6 The Time Value of Money Timing of many decisions involves a gap between the time when costs of a project are borne and the time when benefits are received. $1 today is worth more than $1 tomorrow. Present value (PV ) of a future value (FV ) lump-sum amount to be received at the end of n periods in the future when the per-period interest rate is i : PV = FV (1 + i ) n Examples: - Lotto winner choosing between a single lump-sum payout of $104 million or $198 million over 25 years. - Determining damages in a patent infringement case. 23/38 Present Value vs. Future Value The present value (PV) reflects the difference between the future value and the opportunity cost of waiting (OCW). Succinctly, If i = 0, note that PV = FV. PV = FV OCW As i increases, the higher is the OCW and the lower the PV. 24/38
7 Present Value of a Series I Present value of a stream of future amounts (FV t ) received at the end of each period for n periods: I Equivalently PV = FV 1 (1 + i ) 1 + FV 2 (1 + i ) FV n (1 + i ) n n PV = X t =1 FV t (1 + i ) t 25/38 Net Present Value Suppose a manager can purchase a stream of future receipts (FV t ) by spending C 0 dollars today. The NPV of such a decision is FV NPV = 1 (1 + i ) 1 + FV 2 (1 + i ) + + FV n 2 (1 + i ) C n 0 Decision rule: - If NPV < 0 then reject the proposal - If NPV > 0 then accept the proposal 26/38
8 Present Value of a Perpetuity An asset that perpetually generates a stream of cash flows (CF i ) at the end of each period is called a perpetuity. The present value (PV) of a perpetuity of cash flows paying the same amount (CF = CF 1 = CF 2 =...) at the end of each period is CF CF PV perpetuity = + + (1+i) 1 (1+i) 2 = CF i CF +... (1+i) 3 27/38 Firm Valuation and Profit Maximization The value of a firm equals the present value of current and future profits (cash flows). PV firm = π 0 + π 1 (1 + i ) + π 2 1 (1 + i ) +... = X 2 t =0 π t (1 + i ) t A common assumption among economist is that it is the firm s goal to maximization profits. - This means the present value of current and future profits, so the firm is maximizing its value. 28/38
9 Firm Valuation with Profit Growth If profits grow at a constant rate (g < i ) and current period profits are before and after dividends are: 1 + i PV firm = π 0 i g before current profits have been paid out as dividends PV ex div 1 firm + g = π 0 i g immediately after current profits are paid out as dividends Provided that g < i. - That is, the growth rate in profits is less than the interest rate and both remain constant. Optimization 29/38 Marginal (Incremental) Analysis I Marginal analysis states that optimal managerial decisions involve comparing the marginal (or incremental) benefits of a decisions with the marginal (or incremental) costs. I Control Variable Examples: - Output - Price - Product Quality - Advertising - R&D I Basic Managerial Question: How much of the control variable should be used to maximize net benefits? 30/38
10 Net Benefits I Net Benefits = Total Benefits - Total Costs I Profits = Revenue - Costs Optimization 31/38 Marginal Benefit (MB) I Change in total benefits arising from a change in the control variable, Q: MB = B Q I Slope (calculus derivative) of the total benefit curve. 32/38
11 Marginal Cost (MC) I Change in total costs arising from a change in the control variable, Q: MC = C Q I Slope (calculus derivative) of the total cost curve. Optimization 33/38 Marginal Principle I To maximize net benefits, the managerial control variable should be increased up to the point where MB = MC. I MB > MC, the last unit of the control variable increased benefits more than it increased costs. I MB < MC means the last unit of the control variable increased costs more than it increased benefits. 34/38
12 I Make sure you include all costs and benefits when making decisions (opportunity cost). I When decisions span time, make sure you are comparing apples to apples (PV analysis). I Optimal economic decisions are made at the margin (marginal analysis). 38/38
Chapter 01 The Fundamentals of Managerial Economics
Chapter 01 The Fundamentals of Managerial Economics Multiple Choice Questions 1. The higher the interest rate: A. the greater the present value of a future amount. B. the smaller the present value of a
More informationChapter 9 Making Decisions
Goldwasser AP Microeconomics Chapter 9 Making Decisions BEFORE YOU READ THE CHAPTER Summary Chapter 9 explores two questions either-or and how much and then provides a framework for making decisions arising
More informationEconomics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from
1. An increase in aggregate demand would tend to result from A. an increase in tax rates. B. a decrease in consumer spending. C. a decrease in net export spending. D. an increase in business investment.
More informationThe Fundamentals of Managerial Economics
The Fundamentals of Managerial Economics HEAD11J-'Nu-E Amcott Loses $3.5 Million; Manager Fired _ Learning Objectives After completing this chapter, you will be able to: LO 1 Summarize how goals, constraints,
More informationECONOMICS 103. Dr. Emma Hutchinson, Fall 2017
ECONOMICS 103 Dr. Emma Hutchinson, Fall 2017 http://web.uvic.ca/~ehutchin/teach/103/103f17.html Reminder: familiarize yourself with all course policies by reading the course outline and all posted info.
More informationTEN PRINCIPLES OF ECONOMICS. The word Economy... An individual economic agent faces many decisions: Intro Macroeconomic Theory Professor Minseong Kim
TEN PRINCIPLES OF ECONOMICS Chapter 1 The word Economy... Comes from a Greek word for one who manages a household. An individual economic agent faces many decisions: Should I go to college or should I
More informationPRINCIPLES OF ECONOMICS. J. Mao
PRINCIPLES OF ECONOMICS J. Mao Principle #1: People Face Tradeoffs All decisions involve trade offs. To get one thing we like, we usually have to give up another thing we like. Xbox or Iphone 6 Playing
More information1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down)
1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down) B.) there is a downward movement along the existing supply curve which does not shift C.) the supply curve
More informationTen Principles of Economics. Chapter 1
Ten Principles of Economics Chapter 1 Economy...... The word economy comes from a Greek word for one who manages a household. A household and an economy face many decisions: Who will work? What goods and
More informationMANAGERIAL MODELS OF THE FIRM
MANAGERIAL MODELS OF THE FIRM THE NEOCLASSICAL MODEL 1. Many Models of the firm based on different assumptions that could be described as economic models. 2. One particular version forms mainstream orthodox
More information23 Perfect Competition
23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven
More informationChapter Summary and Learning Objectives
CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect
More informationLecture 7 Production Cost and Theory of the Firm
Lecture 7 Production Cost and Theory of the Firm Business 5017 Managerial Economics Kam Yu Fall 2013 Outline 1 Cost Structure of a Firm Production Costs Marginal Cost in the Short Run 2 Supply Function
More informationPAPER No. : 02 MANAGERIAL ECONOMICS MODULE No. : 03 PRINCIPLES: INDIVIDUAL AND MARKET
Subject Paper No and Title Module No and Title Module Tag 02: Managerial Economics 03: Principles: Individual and Market COM_P2_M3 TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction 3. Principles-
More informationIntroduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1
1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.
More informationMarket Equilibrium, the Price Mechanism and Market Efficiency. Chapter 3
Market Equilibrium, the Price Mechanism and Market Efficiency Chapter 3 Equilibrium Equilibrium is defined as a state of rest, self-perpetuating in the absence of any outside disturbance. Example: a book
More informationAP Microeconomics Chapter 8 Outline
I. Learning Objectives In this chapter students should learn: A. Why economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs. B. How the law of
More informationTen Principles of Economics
Wojciech Gerson (1831-1901) Seventh Edition Principles of Economics N. Gregory Mankiw CHAPTER 1 Ten Principles of Economics In this chapter, look for the answers to these questions What kinds of questions
More informationPrinciples of Economics, Fourth Edition N. Gregory Mankiw
PowerPoint Lecture Presentation to accompany Principles of Economics, Fourth Edition N. Gregory Mankiw Prepared by Kathryn Nantz and Laurence Miners, Fairfield University. Economy...... The word economy
More informationThe Firm s Objective. A Firm s Total Revenue and Total Cost. The economic goal of the firm is to maximize profits. A Firm s Profit
The s of Production Chapter 13 Copyright 2001 by Harcourt, Inc. The s of Production The Law of Supply: Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.
More informationThe Basics of Economics (Chapter 1)
The Basics of Economics (Chapter 1) 0 Billions of people could benefit from better economic policies. Millions are dying because of bad ones. Sometimes the logic of economics is so compelling that it s
More informationSelected brief answers for review questions for first exam, Fall 2006 AGEC 350 Don't forget, you may bring a 3x5" notecard to the exam.
1 Selected brief answers for review questions for first exam, Fall 2006 AGEC 350 Don't forget, you may bring a 3x5" notecard to the exam. These are brief answers intended to help you find the complete
More informationCommon Sense Economics: What Everyone Should Know About Wealth and Prosperity (Gwartney, Stroup, Lee, and Ferrarini - St. Martin s Press, 2010)
1 Common Sense Economics: What Everyone Should Know About Wealth and Prosperity (Gwartney, Stroup, Lee, and Ferrarini - St. Martin s Press, 2010) Reading Guide Part I. Twelve Key Elements of Economics
More informationCHAPTER 8: THE COSTS OF PRODUCTION
CHAPTER 8: THE COSTS OF PRODUCTION Introduction Now that we have examined consumer behavior in more detail, it is time to look at the decision making of the firm. Costs of production are important to determine
More informationProduction and Costs. Bibliography: Mankiw and Taylor, Ch. 6.
Production and Costs Bibliography: Mankiw and Taylor, Ch. 6. The Importance of Cost in Managerial Decisions Containing costs is a key issue in managerial decisionmaking Firms seek to reduce the number
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2
Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided
More information1 Ten Principles of Economics CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 0
1 Ten Principles of Economics CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 0 In this chapter, look for the answers to these questions: What kinds of questions does economics address? What are the principles of
More informationECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter Introduction Towson University 1 / 69
ECON 202 - MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University J.Jung Chapter 2-4 - Introduction Towson University 1 / 69 Disclaimer These lecture notes are customized for the Macroeconomics
More informationTen Principles of Economics
C H A P T E R 1 Ten Principles of Economics Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved
More informationBenefits, Costs, and Maximization
11 Benefits, Costs, and Maximization CHAPTER OBJECTIVES To explain the basic process of balancing costs and benefits in economic decision making. To introduce marginal analysis, and to define marginal
More informationTeaching about Market Structures
Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts
More informationProduction and Cost Analysis I
CHAPTER 12 Production and Cost Analysis I Production is not the application of tools to materials, but logic to work. Peter Drucker McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All
More informationINTRODUCTION TO MANAGERIAL ECONOMICS
BEC 30325: MANAGERIAL ECONOMICS Session 01 INTRODUCTION TO MANAGERIAL ECONOMICS Dr. Sumudu Perera Session Outline Nature and scope of Managerial Economics Goals and Constraints of business organizations
More informationMultiple Choice Part II, A Part II, B Part III Total
SIMON FRASER UNIVERSITY ECON 103 (2007-2) MIDTERM EXAM NAME Student # Tutorial # Multiple Choice Part II, A Part II, B Part III Total PART I. MULTIPLE CHOICE (56%, 1.75 points each). Answer on the bubble
More informationTen Principles of Economics
C H A P T E R 1 Ten Principles of Economics Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved
More informationMultiple choice questions 1-60 ( 1.5 points each)
NAME: STUDENT ID: Final Exam ECON 101, Section 2 summer 2004 Ying Gao Instructions Please read carefully! 1. Print your name and student ID number at the top of this cover sheet. 2. Check that your exam
More informationECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela
ECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Profit is defined as a. net revenue
More informationFirm Behavior and the Costs of Production
Firm Behavior and the Costs of Production WHAT ARE COSTS? The Firm s Objective The economic goal of the firm is to maximize profits. Total Revenue, Total Cost, and Profit Total Revenue, Total Cost, and
More informationENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING 2 MARKS
ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING 2 MARKS 1. What is managerial economics? It is the integration of economic theory with business practice for the purpose of facilitating decision making and
More informationCosts: Introduction. Costs 26/09/2017. Managerial Problem. Solution Approach. Take-away
Costs Costs: Introduction Managerial Problem Technology choice at home versus abroad: In western countries, firms use relatively capital-intensive technology. Will that same technology be cost minimizing
More informationIntroduction Question Bank
Introduction Question Bank 1. Science of wealth is the definition given by 2. Economics is the study of mankind of the ordinary business of life given by 3. Science which tells about what it is & what
More informationTen Principles of Economics. Principles of Economics. Economy... Scarcity... N. Gregory Mankiw. A household and an economy face many decisions:
A Lecture Presentation in PowerPoint to Accompany Principles of Economics Second Edition by N. Gregory Mankiw Ten Principles of Economics by Greg Mankiw Chapter 1 Copyright by Harcourt, Inc. Prepared by
More informationI enjoy teaching this class. Good luck and have a nice Holiday!!
ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the
More informationTransfer Pricing. 2. Advantages and Disadvantages of Decentralization
Smeal College of Business Managerial Accounting: ACCTG 404 Pennsylvania State University Professor Huddart 1. Overview An essential feature of decentralized firms is responsibility centers (e.g., cost-,
More informationShort run and long run price and output decisions of a monopoly firm,
1 Chapter 1-Theory of Monopoly Syllabus-Concept of imperfect competition, Short run and long run price and output decisions of a monopoly firm, Concept of a supply curve under monopoly, comparison of perfect
More informationAdditional Questions. Externalities and Public Goods.
Additional Questions. Externalities and Public Goods. Problem 1. The purpose of this problem is to help you understand the difference in market demand for purely private and purely public good. For each
More informationMonopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University
15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly
More informationThe Measurement and Importance of Profit
The Measurement and Importance of Profit The term profit comes from the Old French prufiter, porfiter, meaning to benefit. Throughout history, the notion of profit has always been a controversial subject.
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Sample Test 3 Ch 10-13 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A cost incurred in the production of a good or service and for which
More informationPerfectly Competitive Supply. Chapter 6. Learning Objectives
Perfectly Competitive Supply Chapter 6 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1.Explain how opportunity cost is related to the supply
More information14.23 Government Regulation of Industry
14.23 Government Regulation of Industry Class 2 MIT & University of Cambridge 1 Outline Definitions Perfect Competition and Economic Surplus Monopoly and Deadweight Losses Natural Monopolies X-inefficiency
More informationWhich store has the lower costs: Wal-Mart or 7-Eleven? 2013 Pearson
Which store has the lower costs: Wal-Mart or 7-Eleven? Production and Cost 14 When you have completed your study of this chapter, you will be able to 1 Explain and distinguish between the economic and
More informationMonopolistic Competition. Chapter 17
Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic
More informationUNIT 4 PRACTICE EXAM
UNIT 4 PRACTICE EXAM 1. The prices paid for resources affect A. the money incomes of households in the economy B. the allocation of resources among different firms and industries in the economy C. the
More informationProduction Possibilities, Opportunity Cost, and Economic Growth
Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth CHAPTER SUMMARY The What, How and For Whom are introduced as the fundamental economic questions that must be addressed by all societies.
More informationThe principles of HOW PEOPLE MAKE DECISIONS
1 Ten Principles of Economics P R I N C I P L E S O F MICROECONOMICS FOURTH EDITION N. GREGORY MANKIW Premium PowerPoint Slides by Ron Cronovich 2007 update 2008 Thomson South-Western, all rights reserved
More informationUniversity of Toronto February 6, ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 3
Department of Economics Prof. Gustavo Indart University of Toronto February 6, 2009 SOLUTIONS ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The
More informationCost-minimizing input combinations. Rush October 2014
Cost-minimizing input combinations Rush October 2014 Today s objectives Review marginal revenue productivity and firm resource demand Look at the optimal combination of resources for the competitive firm
More information12 ECONOMICS 3 MARKS MATERIAL LESSON 1 1. State Alfred Marshall s definition of Economics? Alfred Marshall defines; economics as a study of mankind in the ordinary business of Life 2. What is the main
More informationThursday, October 13: Short and Long Run Equilibria
Amherst College epartment of Economics Economics 54 Fall 2005 Thursday, October 13: Short and Long Run Equilibria Equilibrium in the Short Run The equilibrium price and quantity are determined by the market
More informationSupply and demand are the two words that economists use most often.
Chapter 13. The Costs of Production The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often. Supply and demand are the forces that make market economies
More informationThe Key Principles of Economics
Chapter Summary 2 The Key Principles of Economics This chapter covers five key principles of economics, the simple, self-evident truths that most people readily accept. If you understand these principles,
More informationECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION
YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2014 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number
More informationECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION
YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2014 FORM 3 Directions 1. Fill in your scantron with your unique-id and the form number
More informationThe Competitive Model in a More Realistic Setting
CHAPTER 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Summary and Learning Objectives 13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive
More informationManagerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings
More informationThe Foundations of Microeconomics
The Foundations of Microeconomics D I A N N A D A S I L V A - G L A S G O W D E P A R T M E N T O F E C O N O M I C S U N I V E R S I T Y O F G U Y A N A 1 4 S E P T E M B E R, 2 0 1 7 Wk 3 Lectures I
More informationPerfect Competition & Welfare
Perfect Competition & Welfare Outline Derive aggregate supply function Short and Long run euilibrium Practice problem Consumer and Producer Surplus Dead weight loss Practice problem Focus on profit maximizing
More informationFIRST INTRODUCTION TO. Dr. Mohammed A. Alwosabi. ECON140: Microeconomics Ch.1 Dr. Mohammed Alwosabi. Chapter 1
Chapter 1 FIRST INTRODUCTION TO ECONOMICS Dr. Mohammed A. Alwosabi 1 The Fundamental Problem of Economics: Scarcity and Choice It is a fact of life that we cannot get everything we want. We all want more
More informationPractice Exam 3 Questions
1. What is the main goal of a firm? A) To be as big as possible. B) To hire as many people as possible. C) To make as much profit as possible. D) All of the above answers are correct. Practice Exam 3 Questions
More informationEfficiency and Fairness of Markets
Efficiency and Fairness of Markets Chapter 6 CHAPTER IN PERSPECTIVE In Chapter 6 we study the equilibrium quantities of goods, services, and factors of production to determine if markets are efficient.
More informationGLOSSARY OF TERMS ENTREPRENEURSHIP AND BUSINESS INNOVATION
Accounts Payable - short term debts incurred as the result of day-to-day operations. Accounts Receivable - monies due to your enterprise as the result of day-to-day operations. Accrual Based Accounting
More informationThe Markets for the Factors of Production
18 The Markets for the Factors of Production PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Factors of production Factors of Production Inputs used to produce goods and
More informationChapter 1: Ten Principles of Economics Principles of Economics, 8 th Edition N. Gregory Mankiw Page 1
Page 1 I. Introduction A. Use the margins in your book for note keeping. B. My comments in these chapter summaries are in italics. C. For testing purposes, you are responsible for material covered in the
More informationUnit 5: The Resource Market. (The Factor Market or Input Market)
Unit 5: The Resource Market (The Factor Market or Input Market) 1 2 The Circular Flow Model The Product Market- The place where goods and services produced by businesses are sold to households. The Resource
More informationProfessor Christina Romer. LECTURE 8 WELFARE ANALYSIS February 8, 2018
Economics 2 Spring 2018 Professor Christina Romer Professor David Romer LECTURE 8 WELFARE ANALYSIS February 8, 2018 I. OVERVIEW II. CONCEPT OF ECONOMIC SURPLUS A. Consumer Surplus B. Producer Surplus III.
More informationExternalities. 5 Microeconomics ACTIVITY 5-2
ACTIVITY 5-2 Externalities A market externality refers to a situation where some of the costs or benefits from an activity fall on someone other than the people directly involved in the activity. Externalities
More informationAnalyzing Accumulated Change Integrals in Action. Improper Integral
Analyzing Accumulated Change Integrals in Action 6.1 -Perpetual Accumulation and Improper Integrals Improper Integral Definite integrals have specific numbers for both the upper limit and the lower limit.
More informationUniform Price vs. Differentiated Payment Auctions
Uniform Price vs. Differentiated Payment Auctions A Discussion of Advantages and Disadvantages PREPARED FOR Independent Electricity System Operator ICA Fundamentals and Concepts Stakeholder Meeting PREPARED
More informationAP Microeconomics Chapter 10 Outline
I. Learning Objectives In this chapter students should learn: A. How the long run differs from the short run in pure competition. B. Why profits encourage entry into a purely competitive industry and losses
More informationFigure: Profit Maximizing
Name: Student ID: 1. A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm experiencing: A) scale reduction. B) increasing returns to scale. C) increasing
More informationPricing with Market Power
Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes
More informationPractice Test for Midterm 2 Econ Fall 2009 Instructor: Soojae Moon
Practice Test for Midterm 2 Econ 2010-200 Fall 2009 Instructor: Soojae Moon Please read carefully and choose the choice that best completes the statement or answers the question. Table 7-2 This table refers
More informationChapter 8. Competitive Firms and Markets
Chapter 8 Competitive Firms and Markets Topics Perfect Competition. Profit Maximization. Competition in the Short Run. Competition in the Long Run. 8-2 Copyright 2012 Pearson Addison-Wesley. All rights
More informationINTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp )
ECO 300 Fall 2005 November 10 MONOPOLY PART 1 INTERPRETATION Literally, just one firm in an industry But interpretation depends on how you define industry General idea a group of commodities that are close
More informationUnderstanding Supply. Chapter 5 Section Main Menu
Understanding Supply What is the law of supply? What are supply schedules and supply curves? What is elasticity of supply? What factors affect elasticity of supply? The Law of Supply According to the law
More informationLecture 20: Price Discrimination, Monopoly Rents and Social Surplus
Lecture 20: Price Discrimination, Monopoly Rents and Social Surplus Monopoly p 1 A monopoly price increase leads to an increase in monopoly profits whenever p 2 Example: Monopoly Profit Maximization (The
More informationUNIT 8 COST CONCEPTS AND ANALYSIS I
UNIT 8 COST CONCEPTS AND ANALYSIS I Objectives After going through this unit, you should be able to: understand some of the cost concepts that are frequently used in the managerial decision making process;
More information9/5/2017. Introduction & Chapter 1
Introduction & Chapter 1 Economics is the study of the allocation of scarce resources How do people make choices under scarcity and what are the results of these choices for society? While microeconomics
More informationLecture 2: Market Structure I (Perfect Competition and Monopoly)
Lecture 2: Market Structure I (Perfect Competition and Monopoly) EC 105. Industrial Organization Matt Shum HSS, California Institute of Technology October 1, 2012 EC 105. Industrial Organization ( Matt
More informationWEEK 4: Economics: Foundations and Models
WEEK 4: Economics: Foundations and Models Economics: study of the choices people and societies make to attain their unlimited wants, given their scarce resources Market: group of buyers and seels of good
More informationHow is it decided which goods and services will be produced, how they will be produced, and who will buy them?
Chapter 2: The Market System and Circular Flow Learning objectives: Differentiate between laissez-faire capitalism, the command system and the market system. List the main characteristics of the market
More information2, 1 EE CONOMIC SYSTEMS
2, 1 For use with textbook pages 31 38 EE CONOMIC SYSTEMS KEY TERMS economic system The way in which a nation uses its resources to satisfy its people s needs and wants (page 31) traditional economy A
More informationPrinciples of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 7
Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 7 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #1 must be completed within the allocated time (i.e., between
More informationSTRATEGIC MANAGEMENT ACCOUNTING
STRATEGIC MANAGEMENT ACCOUNTING (BB315009S) Prepared by: MISS NURAZRIN BINTI JUPRI Chapter 7: Divisional Performance & Transfer Pricing 2 Purposes of transfer pricing 1. To provide information that motivates
More informationChapter 1: What is Economics? Section 3
Chapter 1: What is Economics? Section 3 Objectives 1. Interpret a production possibilities curve. 2. Explain how production possibilities curves show efficiency, growth, and cost. 3. Explain why a country
More informationREVIEW QUESTIONS FOR SECOND MIDTERM
REVIEW QUESTIONS FOR SECOND MIDTERM 1. The market for strawberries is perfectly competitive. The production of strawberries exhibits constant returns to scale and this is a constant cost industry. Note:
More informationAP Microeconomics Chapter 7 Outline
I. Learning Objectives In this chapter students should learn: A. How to define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility. B. How
More informationECON 311 MICROECONOMICS THEORY I
ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview
More informationHOMEWORK ECON SFU
HOMEWORK 1998-2 ECON 103 - SFU the law of diminishing returns have on short-run costs? Be specific. (e) âwhen... And when marginal product is diminishing, marginal cost is rising.â Illustrate and... ECON
More information