Neoclassical Economics - ANSWER-Rational choice theory approximates human
behavior.
Focus on equilibrium through mathematical optimization.
Consumers maximize utility and firms maximize profits.
THE mainstream, traditional, view of microeconomic theory
Austrian approach to managerial economics - ANSWER-Uses verbal reasoning rather
than mathematical reasoning
Focus on real-world prices with real causes and on a process of adjustment via
interaction between buyers and sellers.
How Austrians view physical capital - ANSWER-as heterogeneous (not all the same K)
and multi-specific (used for different purposes)
Entrepreneur - ANSWER-Owner of the firm
earner of the firm's profits
ultimate decision maker for the use of the firm's resources
Manager - ANSWER-employee who helps coordinate the organization of the firm's
resources to help entrepreneur earn profits
Responsible for coordinating the actions of others within the business
Capitalist - ANSWER-Owner of physical capital used by the firm to produce goods and
services
, Often, business owners own their own capital (where the entrepreneur is also the
capitalist), but not always
Laborer - ANSWER-Owner of physical labor used by the firm to produce goods and
services
Residual Claimant - ANSWER-Is the entrepreneur
Receives whatever amount of money is left after all other factors of production are paid
Ultimate decision maker for the business
Profit - ANSWER-entrepreneur's payment for his/her contribution in producing a good or
service
Accounting profit - ANSWER-firm's revenue minus the explicit costs (or costs paid to
other factors of production)
difference between a firm's total revenue and its explicit costs
economic profit - ANSWER-firm's revenue minus explicit costs AND implicit costs (or
the cost paid for the entrepreneur's own resources)
difference between a firm's total revenue and its explicit AND implicit costs
Total economic cost equation - ANSWER-Explicit costs of market supplied resources +
implicit costs of owner-supplied resources = total economic cost
The Nature of the Firm by Coase emphasizes ________ - ANSWER-the important role
of transaction costs, or costs of engaging in trade
(coase won a nobel prize in economics for his work on the significance of transaction
costs and property rights)
For Coase, firms exist to ______ - ANSWER-minimize transaction costs (the costs of
engaging in mutually-beneficial exchange)
According to Alchian and Demsetz, the firm helps with ______ - ANSWER-the
coordination and evaluation of team production
(they view employees and customers similarly, as a team use of inputs and a
centralized party that helps arrange all other inputs)
Monitoring - ANSWER-Done to try to measure productivity
Monitoring behaviour (ex. how many cigarette breaks are taken; how quickly someone
moves from one task to another)
Note: monitoring costs are not zero, and they increase with the number of people
monitored
Coproduction - ANSWER-Ex. a business providing goods and services to consumers is
an example of co-production between employer and employee
Two parties participating in production
Who has ownership and control - ANSWER-Shareholders specialize in ownership
behavior.
Focus on equilibrium through mathematical optimization.
Consumers maximize utility and firms maximize profits.
THE mainstream, traditional, view of microeconomic theory
Austrian approach to managerial economics - ANSWER-Uses verbal reasoning rather
than mathematical reasoning
Focus on real-world prices with real causes and on a process of adjustment via
interaction between buyers and sellers.
How Austrians view physical capital - ANSWER-as heterogeneous (not all the same K)
and multi-specific (used for different purposes)
Entrepreneur - ANSWER-Owner of the firm
earner of the firm's profits
ultimate decision maker for the use of the firm's resources
Manager - ANSWER-employee who helps coordinate the organization of the firm's
resources to help entrepreneur earn profits
Responsible for coordinating the actions of others within the business
Capitalist - ANSWER-Owner of physical capital used by the firm to produce goods and
services
, Often, business owners own their own capital (where the entrepreneur is also the
capitalist), but not always
Laborer - ANSWER-Owner of physical labor used by the firm to produce goods and
services
Residual Claimant - ANSWER-Is the entrepreneur
Receives whatever amount of money is left after all other factors of production are paid
Ultimate decision maker for the business
Profit - ANSWER-entrepreneur's payment for his/her contribution in producing a good or
service
Accounting profit - ANSWER-firm's revenue minus the explicit costs (or costs paid to
other factors of production)
difference between a firm's total revenue and its explicit costs
economic profit - ANSWER-firm's revenue minus explicit costs AND implicit costs (or
the cost paid for the entrepreneur's own resources)
difference between a firm's total revenue and its explicit AND implicit costs
Total economic cost equation - ANSWER-Explicit costs of market supplied resources +
implicit costs of owner-supplied resources = total economic cost
The Nature of the Firm by Coase emphasizes ________ - ANSWER-the important role
of transaction costs, or costs of engaging in trade
(coase won a nobel prize in economics for his work on the significance of transaction
costs and property rights)
For Coase, firms exist to ______ - ANSWER-minimize transaction costs (the costs of
engaging in mutually-beneficial exchange)
According to Alchian and Demsetz, the firm helps with ______ - ANSWER-the
coordination and evaluation of team production
(they view employees and customers similarly, as a team use of inputs and a
centralized party that helps arrange all other inputs)
Monitoring - ANSWER-Done to try to measure productivity
Monitoring behaviour (ex. how many cigarette breaks are taken; how quickly someone
moves from one task to another)
Note: monitoring costs are not zero, and they increase with the number of people
monitored
Coproduction - ANSWER-Ex. a business providing goods and services to consumers is
an example of co-production between employer and employee
Two parties participating in production
Who has ownership and control - ANSWER-Shareholders specialize in ownership
