Managerial Economics PRE-MASTER NNBS 1
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Managerial Economics PRE-MASTER NNBS 1 - Leaderboard
Managerial Economics PRE-MASTER NNBS 1 - Details
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| Consumer surplus | The difference between what the consumer is willing to pay for a product and what the consumer actually pays when buying it |
| Learning curves | Displays the relation between average cost for a given output and cumulative past production |
| Monopolistic competition | A market structure that is hybrid between competition and monopoly. there are multiple firms that product similar products |
| Network effects | Demand for the product increases even more because more people are using the product |
| Network effects | Demand for a product increases even more because more people are using the product |
| Adverse selection | The tendency of individuals, with private information about something that affects a potential trading partner's cost or benefits, to make offers that are detrimental to the trading partner. e.g. quality uncertainty (health insurance, market for lemons (second hand cars), bank credit rationing) |
| Oligopolistic market | A market structure where the market is dominated by a few large firms which account for most of the products within the market. products may of may not be differentiated. firms CAN EARN ECONOMIC PROFITS |
| Price discrimination | Price discrimination is when a firm charges customers (or different sub groups) different prices for the same product of service. |
| Sunk costs | Sunk costs are non recoverable costs that already have been incurred and the resources have no alternative use |
| Marginal revenue | Marginal revenue is the change in revenue by the one-unit change in quantity |
| Law of demand | Law of demand states that normal demand curves slope downwards to the right. the higher the price, the lower the demand. why? consumer's opportunity costs increases of that product/service, so more trade offs need to be made. |
| Inferior good | A good for which the quantity purchased declines when income increases. |
| Economic profit | An above competitive (or extra normal) rate of return on assets |
| Cartel | Consists of formal agreements among a set of firms to cooperate in setting prices and output levels |
| Monitoring costs | The costs to oversee whether the obligations of another party have been met |
| Marginal costs | The change in total costs associated with one-unit change in output |
| Marginal utility | Increase or decrease in utility when one additional product is gained |
| Externalities | Effects or actions outside an exchange relationship |
| Price discrimination | Charge different prices (to different subgroups or customers) for the same product, not related to differences in production of distribution costs |
| Free rider problem | Occurs in team efforts. a person who obtains something without effort or cost. |
| Law of diminishing returns | States the marginal product of a variable factor will eventually decline as the use of the factor is increased. |
| Indifference curve | Graphical tool to show the combination of two particular goods which yield one level utility |
| Marginal analysis | Marginal costs and benefits that are associated with making a decision |
| Consumer choice | Economic framework of individual choice (utility function, indifference curves, budget line) |
| Opportunity cost | The opportunity costs of using a resource for a given purpose is its value in its best alternative use. the opportunity cost of using four hours to play golf is the value of using the four hours in Larry's next best alternative use. |
| Utility function | Function expresses the relation between total utility and the level of goods consumed |
| Indifference curve | Preferences implied by the utility function can be illustrated graphically through indifference curves. pictures all combinations of goods that yield the same utility. |
| Budget line | The feasible combinations of (food and clothing) that are attainable given the person's income. |
| Managerial implications | This analysis illustrates how the economic framework can be used to analyse and address management problems. managers are interested in affecting the behaviour of individuals such as, employees, customers, and union leaders. |
| Only money matters model | Only important component of the job is the level of monetary compensation |
| Happy is productive model | Happy employees are more productive than unhappy employees. managers see as their goal the designing of the work environments that satisfy employees. |
| Good citizen model | Employees have a strong personal desire to do a good job; they take prize in their work and want to excel. |
| Product of the environment model | Argues that the behaviour of individuals are largely determined by their upbringing. |
| Pareto effect | Economists focus on Pareto efficiency in evaluating the effectiveness of alternative economic systems. an allocation is Pareto efficient if there is no alternative that keeps all individuals at least well off but makes at least one person well off. |
| Property right | A legally enforced right to select the uses of an economic good. a property right is private when it is assigned to a specific person. private property rights are alienable in that they can be transferred (sold or given) to another individual. |
| Gains from trade | Trade takes place because the buyer places a higher value on the item than the seller. the corresponding gains from trade make both parties better off - voluntary trade is mutually advantageous. |
| Absolute advantage | It takes fewer hours to produce either a pound of meat or a quart of beer. |
| Comparitie advantage | Lower opportunity cost. total output and standards of living often increase when individuals specialise in production activities for which they have a comparative advantage. |
| Externalities | Externalities exist when the actions of one party affect the well-being or production possibilities of another party outside the exchange relationship. |
| Coase theorem | Property rights should be assigned and exchangeable to achieve efficiency as long as contracting costs are sufficiently low and the property rights are assigned clearly. |
| Consumer surplus | The difference in what a consumer is willing to pay for a product and what the consumer actually pays when buying it. |
| Producer surplus | The difference between the amount a producer fo a good receives and the minimum amount the producer is willing to accept for the good. |
| Market vs. central planning | Market: the price system motivates better use of knowledge and information in economic decisions, and it provides stronger incentives for individuals to make productive decisions. |
| General knowledge | Inexpensive to transfer. |
| Specific knowledge | Expansive to transfer |
| Scientific knowledge | Knowledge of how recombinant DNA works is not easily transferred to non-scientists. |
| Assembled knowledge | An account who has completed a client's tax returns for several years is likely to have assembled important knowledge about the relevant parts of the tax code. |
| Contracting costs | A primary set of costs of using markets for exchange involves the discovery and the negotiation of prices. |
| Demand function | A mathematical representation of the relation between the quantity demanded for a product and all factors that influence this demand. |
| Demand curves | Displays for a particular period of time how many units will be purchased at each possible price. |
| Law of demand | The negative slope of the demand curve |
| Elasticity of demand | Measures the percentage change in quantity demanded given a percentage change in price |
| Marginal revenue | The change in total revenue given a one-unit change in quantity. |
| Cross-elasticity | The percentage change in quantity demanded of a good, given a percentage change in the price of some other good |
| Normal goods | Goods in which demand increases with income |
| Inferior goods | Goods for which demand declines with income |
| Income elasticity | Percentage change in the demand for a good given a percentage change in income |
| Network effect | Demand for the product increases even more because more people are using the product |
| Product life cycle | The pattern in the demand for new products |
| Demand estimation | Managers use three basic approaches to estimate demand: 1. interviews 2. price experimentation 3. statistical analysis all three approaches can suffer from potential serious problems. managers have to do the best they can, given imperfect information and limited resources. |
| Production function | A descriptive relation that links input with output |
| Returns to scale | The relation between output and the proportional variation of all inputs taken together. |
| Return to a factor | The relation between output and the variation in a single input holding other inputs fixed. |
| Law of diminishing returns | The marginal product of a variable factor eventually will decline as its use is increased. |
| Isoquant | Displays all possible ways to produce a given quantity. shows all input combinations that produce the same quantity assuming efficient production. |
| Isocost lines | Displays all combinations of inputs that cost the same |
| Substitution effect | The price of an input increases, the firm will reduce its use of this input and increase its use of other inputs. |
| Cost curves | Depicts the relation between total costs and output |
| Marginal cost | The change in total costs associated with a one-unit change in output. |
| Minimum efficient scale | Defined as that plant size at which long-run average cost first reaches its minimum point. |
| Learning curves | Displays the relation between average cost for a given output period. |
| Economies of scope | Exist when the cost of producing a set of products jointly within one firm is less than the cost of producing a set of products separately across independent firms. |
| Operating curves | Short run cost curves, because they are used in making near tear production and pricing decisions. |
| Planning curves | Long term cost curves as they play a key role in longer run planning decisions relating to plant size and equipment acquisitions. |
| Monopoly | Single firm in the industry |
| Monopolistic competition | A market structure that is a hybrid between competition and monopoly. there are multiple firms that produce similar products. |
| Oligopoly | Only a few firms produce most of the output |
| Nash equilibrium | When each firm is doing the best it can, given the actions of its rivals given the action of one firms, the other firm has the incentive to deviate. |
| Prisoners' dillema | Even when firms are free to cooperate, effective cooperation is not always easy to achieve. individual firms have incentives to deviate from agreed-on outputs and prices. |
| Cartel | Formal agreements to cooperate in setting price and output levels. |
| Market power | When it faces a downward-sloping demand curve. |
| Markup pricing | A technique that managers can use when they have limited information and resin to believe that price elasticity varies little across the demand curve. |
| Cost plus pricing | Appears inconsistent with profit maximization since it includes fixed and sunk costs and does not consider consumer demand explicitly. |
| Block pricing | A high price is charged for the first block and declining prices for subsequent blocks. block pricing either van be used to extract additional profits from a set of customers with similar demands or ban be used to price discriminate. |
| Two-part tariff | The customer pays an up-front fee for the right to buy the product and then pays additional fees for each unit of the product consumed. |
| Price discrimination | Whenever a firm charges different prices across customers that are not related to differences in production and distribution costs. |
| Personalised pricing | Extracts the maximum amount each customer is willing to pay for the product. |
| Group pricing | Results when a firm separates its customers into several groups and sets a different price for each group. |
| Menu pricing | All potential customers are given the same menu of options. |
| Coupons and rebates | Offer price discounts to customers. price sensitive customers are more likely to use coupons and rebates and thus are charged lower effective prices. |
| Bundle | Bundling products can extract additional profits from a customer base with heterogeneous product demand. |
| Firm | A local point for a set of contracts |
| Organisational structure | Contrafes specify a firm's organisational architecture (decision right, performance evaluation, reward system) |
| Free rider problem | Shrinking in group activities can reduce team output, comparable to cartel. |
| Incentive problems | Agents do not act in the best interest of principals automatically. examples: owner vs. manager = profits or salaries and perks + take chance or play it safe buyer vs. supplier = dedicated assets (hold up problem) management vs. labor: shrinking controlling incentive conflicts: 1. detailed contract 2. contracts aligning the incentives of all parties 3. building long-term relationships/reputation 4. market for corporate control |
| Agency relationships | Consist of agreement under which one party, the principal engages another party, the agent, to perform some service on the principal's behalf. |
| Agency problems | After the contract is set, agents have incentives to take actions that increase their utility at the expense of the principals. e.g. fire insurance, real estate, mechanic. |
| Agency costs | Costs because the principal cannot observe the actions of the agent. 1. monitoring costs: costs made by principal to limit asymmetric information (hiring auditor, fire inspection) 2. bonding costs: costs are made by agent to show principal that agent is committed to the principal's goals (ISO standards, fire precautions) |