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Definition
A person who directs resources to achieve a stated goal.
Directs the efforts of others.
Purchases inputs used in the production of the firm’s output.
Directs the product price or quality decisions. |
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Term
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Definition
The science of making decisions in the presence of scarce resources.
Resources are anything used to produce a good or service, or achieve a goal.
Decisions are important because scarcity implies trade-offs. |
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Term
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Definition
The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal.
Should a firm purchase components – like disk drives and chips – from other manufacturers or produce them within the firm?
Should the firm specialize in making one type of computer or produce several different types?
How many computers should the firm produce, and at what price should you sell them? |
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Term
| Basic principles comprising effective management: |
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Definition
Identify goals and constraints.
Recognize the nature and importance of profits.
Understand incentives.
Understand markets.
Recognize the time value of money.
Use marginal analysis. |
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Term
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Definition
| Total amount of money taken in from sales (total revenue) minus the dollar cost of producing goods or services. |
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Definition
| The difference between total revenue and the total opportunity cost of producing goods or services. |
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Definition
| The explicit cost of a resource plus the implicit cost of giving up its best alternative. |
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Term
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Definition
| Profits are a signal to resource holders where resources are most highly valued by society. |
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Term
| 5 forces and industry profitability |
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Definition
Entry
Power of Buyers
substitutes and complements
industry rivalry
power of input suppliers
act together for Level, Growth, and Sustainability of Industry Profits |
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Term
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Definition
-Entry Costs
-Speed of Adjustment
-Sunk Costs
-Economies of Scale
-Network Effects
-Reputation
-Switching Costs
-Government Restraints |
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Term
| power of buyers (5 forces) |
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Definition
-Buyer Concentration
-Price/Value of Substitute Products or Services
-Relationship-Specific Investments
-Customer Switching Costs
-Government Restraints |
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Term
| Substitutes & Complements (5 forces) |
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Definition
-Price/Value of Surrogate Products or Services
-Price/Value of Complementary Products or Services
-Network Effects
-Government Restraints |
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Term
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Definition
-Concentration
-Price, Quantity, Quality,
or Service Competition
-Degree of Differentiation
-Switching Costs
-Timing of Decisions
-Information
-Government Restraints |
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Term
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Definition
-Supplier Concentration
-Price/Productivity of Alternative Inputs
-Relationship-Specific Investments
-Supplier Switching Costs
-Government Restraints |
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Term
| Bargaining position of consumers and producers is limited by three rivalries in economic transactions: |
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Definition
-Consumer-producer rivalry.
-Consumer-consumer rivalry.
-Producer-producer rivalry. |
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Term
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Definition
| Managers can use present value analysis to properly account for the timing of receipts and expenditures. |
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Term
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Definition
reflects the difference between the future value and the opportunity cost of waiting
( PV=FV-OCW) |
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Term
| Profit maximization principle |
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Definition
| Maximizing profits means maximizing the value of the firm, which is the present value of current and future profits. |
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Term
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Definition
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Term
| Short-term and long-term profits principle |
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Definition
| If the growth rate in profits is less than the interest rate and both are constant, maximizing current (short-term) profits is the same as maximizing long-term profits. |
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Term
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Definition
manager's objective is to maximize net benefits (N (Q)):
B (Q) = total benefit
C (Q) = total cost
N (Q) = B(Q) - C (Q) |
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Term
| How can the manager maximize net benefits? |
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Definition
| by using marginal analysis |
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Term
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Definition
| the change in total benefits arising from a change in the managerial control variable, Q. |
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Term
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Definition
| the change in the total costs arising from a change in the managerial control variable, Q. |
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Term
| Marginal net benefits: MNB (Q) |
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Definition
| MNB (Q) = MB (Q) - MC (Q) |
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Term
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Definition
| To maximize net benefits, the manager should increase the managerial control variable up to the point where marginal benefits equal marginal costs. This level of the managerial control variable corresponds to the level at which marginal net benefits are zero; nothing more can be gained by further changes in that variable. |
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Term
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Definition
| the additional revenues that stem from a yes-or-no decision |
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Term
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Definition
| the additional costs that stem from a yes-or-no decision |
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Term
| "thumbs up" decision (Incremental decisions) |
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Definition
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Term
| "thumbs down" decision (Incremental decisions) |
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Definition
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Term
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Definition
-Make sure you include all costs and benefits when making decisions (opportunity costs).
-When decisions span time, make sure you are comparing apples to apples (present value analysis).
-Optimal economic decisions are made at the margin (marginal analysis). |
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