Managerial Economics 12th Edition

Chapter 1: MANAGERS, PROFITS, AND MARKETS Essential Concepts 1. Managerial economics applies microeconomic theory—the study of the behavior of individual economic agents—to business problems in order to teach business decision makers how to use economic analysis to make decisions that will achieve the firm’s goal— maximization of profit. 2. Economic theory helps managers understand real-world business problems

Chapter 10: PRODUCTION AND COST ESTIMATION Essential Concepts 1. The cubic empirical specification for a short-run production function is derived from a long-run cubic production function. The cubic form of the long-run production function is expressed as Q = aK 3 L3 + bK 2 L2 2. The properties of a short-run cubic production function (Q

Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS Essential Concepts 1. Perfect competition occurs when a market possesses the following three characteristics: i. Firms are price-takers because each firm produces only a very small portion of total market or industry output. ii. All firms in the market produce a homogeneous or perfectly standardized product. iii. Entry into and exit

Chapter 12: MANAGERIAL DECISIONS FOR FIRMS WITH MARKET POWER Essential Concepts 1. Market power is the ability of a firm to raise price without losing all its sales. Any firm that faces a downward sloping demand curve has market power. Market power gives the firm the ability to raise price above average cost and earn

Chapter 13: STRATEGIC DECISION MAKING IN OLIGOPOLY MARKETS Essential Concepts ▪ Interdependence of firms’ profits, which is the distinguishing feature of oligopoly markets, arises when the number of firms in a market is small enough that every firm’s price and output decisions affect the demand and marginal revenue conditions of every other firm in the market. ▪ Game

Chapter 14: ADVANCED PRICING TECHNIQUES Essential Concepts PRICE DISCRIMINATION: CAPTURING CONSUMER SURPLUS 1. Uniform pricing occurs when businesses charge the same rice for every unit of the product they sell. Price discrimination is a more profitable alternative to uniform pricing, if market conditions allow this practice to be profitably executed. 2. Price discrimination is the technique of

Chapter 15: DECISIONS UNDER RISK AND UNCERTAINTY Essential Concepts 1. Conditions of risk occur when a manager must make a decision for which the outcome is not known with certainty. Under conditions of risk, the manager can make a list of all possible outcomes and assign probabilities to the various outcomes. Uncertainty exists when a

Chapter 16: GOVERNMENT REGULATION OF BUSINESS Essential Concepts 16.1 MARKET COMPETITION AND SOCIAL ECONOMIC EFFICIENCY 1. Social economic efficiency exists when the goods and services that society desires are produced and consumed with no waste from inefficiency in either production or consumption. To reach this goal, two efficiency conditions must be fulfilled: productive efficiency and allocative

Chapter 2: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM Essential Concepts 1. The amount of a good or service that consumers are willing and able to purchase during a given period of time is called quantity demanded (Qd ). Six principal variables influence quantity demanded: (1) the price of the good or service (P), (2) the incomes

Chapter 3: MARGINAL ANALYSIS FOR OPTIMAL DECISIONS Essential Concepts 1. Formulating an optimization problem involves specifying three things: (1) the objective function to be either maximized or minimized, (2) the activities or choice variables that determine the value of the objective function, and (3) any constraints that may restrict the range of values that the

Chapter 4: BASIC ESTIMATION TECHNIQUES Essential Concepts 1. A simple linear regression model relates a dependent variable Y to a single independent (or explanatory) variable X in a linear fashion Y = a + bX The intercept parameter (a) gives the value of Y at the point where the regression line crosses the Yaxis, which is

Chapter 5: THEORY OF CONSUMER BEHAVIOR Essential Concepts 1. The basic consumer optimization problem facing each individual can be stated as follows: Individual consumption decisions are made with the goal of maximizing total satisfaction from consuming various goods and services, subject to the constraint that spending on goods exactly equals the individual’s money income. 2. Basic consumer

Chapter 6: ELASTICITY AND DEMAND Essential Concepts 1. The price elasticity of demand (E ) measures the responsiveness or sensitivity of consumers to changes in the price of a good by taking the ratio of the percentage change in quantity demanded to the percentage change in the price of the good: E= %DQ %DP Since P and Q are

Chapter 7: DEMAND ESTIMATION AND FORECASTING Essential Concepts 1. Empirical demand functions are demand equations derived from actual market data. Empirical demand functions are extremely useful in making pricing and production decisions. 2. In linear form, an empirical demand function can be specified as Q = a + bP + cM + dPR where Q is the

Chapter 8: PRODUCTION AND COST IN THE SHORT RUN Essential Concepts 1. A production function shows the maximum amount of output that can be produced from any specified set of inputs, given the existing technology. 2. Technical efficiency is achieved when the maximum possible amount of output is being produced with a given combination of inputs.

Chapter 9: PRODUCTION AND COST IN THE LONG RUN Essential Concepts 1. In long-run analysis of production, all inputs are variable and isoquants are used to study production decisions. An isoquant is a curve showing all possible input combinations capable of producing a given level of output. 2. Isoquants are downward sloping because if greater amounts