Managerial Economics exam

Managerial Economics Two major things to consider when trying to minimize cost 1) technology of productions 2) input prices Macroeconomics is the branch of economic analysis that deals with aggregate economic variables such as the economy's total output, central government spending and tax policy, and money supply and interest rates Microeconomics is the study of individual economic units such as consumers. business firms, or specific government agencies Demand the various amounts of a good or service someone (a single consumer or group of buyers) is both willing and able to buy at various possible prices quantity demanded the amount that consumers will buy at any given price law of demand is the proposition that price and quantity demanded can be expected to be inversely related, so that consumers will be willing and able to buy more of a good at lower prices than they are at higher prices Change in quantity demanded is a movement along a given good's demand curve when the price of that good changes but other variables do not demand function relates the amounts of a good that consumers are willing and able o buy to its own price and other relevant variables such as income or prices of other goods Determinants of demand are variables other than a good's own price that are in its demand function. A change in one of them will shift the demand curve for a good Change in demand is a shift in the demand curve that occurs when a variable other than the good's own price changes law of demand (simply put) simply states that both individuals and groups of consumers will generally increase their purchases of a good when its price falls and decrease their purchases when its price rises Quantity in demand (simply put) movement along the demand curve Increase/decrease in income increase = shift the demand curve to the right decrease = shift the demand curve to the left price rise and fall of a substitute (demand) increase in substitute price (shift will be to the right), decrease in substitute price (shift will be to the left) price rise and fall of a complement (demand) increase in substitute price (shift will be to the left), decrease in substitute price (shift will be to the right) Quantity supplied of a good or service is the amount that producers will make available for purchase at a particular price along a supply curve Supply function the amount of a good that sellers are willing and able to offer for sale to both its own price and other relevant independent variables knows as the "determinants of supply" Perfect competition market type that is characterized by many buyers and sellers, where each one believes it is not possible to affect market price by their own individual actions Perfect competition (simplified) seller sees no need to offer a price lower than the going price, since a large number of buyers are willing to pay the market price Equilibrium price supplied is the prevailing market price when quantity demanded equals quantity Equilibrium price (example) Q(d) = 400 - 250(P) Q(s) = -200 + 500(P) 400 - 250 (P) = -200 + 500(P) (P) = .80 We can find the equilibrium value of (Q) by substituting .80 for (P) in either equation for the demand curve or the equation for the supply curve" Q(s) = -200 + 500 (.80) Surplus quantity supplied exceeds quantity demanded, causes price to fall. (Is above equilibrium right of the demand line and left of the supply line) Shortage quantity demanded exceeds quantity supplied causes price to rise (is below equilibrium left of the demand line and right of the supply line) Managerial economics focuses on the types of choices opportunities 2) Analyzing alternatives from which choices can be made 1) Identifying problems and 3) Making choices that are best from the standpoint of the firm or organization Opportunity cost is made