Managerial Economics Exam 1 - Custom Scholars
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Managerial Economics Exam 1

question
Economics
answer
The study of decision-making in the presence of scarcity
question
Managerial Economics
answer
The application of economic analysis to managerial decision-making
question
Managers
answer
Make economic decisions by allocation the scarce resources at their disposal. Must understand behavior of consumers. workers, other managers, and governments to make good decisions
question
Productions Manager
answer
Their objective is normally to achieve a production target at the lowest possible cost. They of course must use the existing factory
question
Human resource managers
answer
They design compensation systems to encourage employees to work hard, They have limited resources and employees are already in the firm
question
Marketing Manager
answer
must allocate an advertising budget to promote the product most effectively. They have a limited marketing budget of course.
question
the firm's top manager
answer
-must coordinate and direct all these activities.
question
Profit
answer
= Revenue-Cost
question
CEO
answer
Must focus on the bottom line: maximizing profit. The ECO is also concerned with how a firm is positioned in a market relative to its rivals. Maximizing profit is more important than beating a rival.
question
Maximizing Profit
answer
-The CEO order the production manager to minimize the cost of producing the particular good or service.
-The CEO ask the market research manager to determine how many units can be sold at any given price, and so forth.
-It would be a major coordination failure if the marketing department set up a system of pricing and advertising based on selling 8,000 units a year, while the production department managed to produce only 2,000
question
Trade-offs
answer
-In an environment of scarcity, management must focus on the trade-offs that directly or indirectly affect profits.
-Evaluating trade-offs often involves marginal reasoning: considering the effect of a small change.
question
How to Produce
answer
-To produce a given level of output, a firm must use more of one input if it uses less of another input.
-Example: Metal and plastic substitute each other in the production of cars. Small increments and reductions of them affect the car's weight, safey, and cost.
question
What price to charge?
answer
-Consumers buy fewer units of a product when its price rises given their limited budgets.
-Examples: When a manger can set the price of a product, the manager must consider theater raising the price offsets the loss from selling fewer units.
question
Consumers
answer
Purchase products subject to their limited budgets
question
Workers
answer
decide on which jobs to take and how much to work given their scarce time and limits on their abilities
question
Rivals
answer
may introduce new, superior products, or cut the prices of existing products.
question
Governments
answer
around the world may tax, subsidize, or regulate products
question
Rational Maximizers and Behavioral Economics
answer
-To understand how others make economic decisions, most economic analysis assumes those 'others' are maximizers: they do the best they can with their limited resources.
-However, in some context, behavioral economics explains those 'others' cannot successfully maximize for a variety of psychological reasons.
question
Markets
answer
are an exchange mechanisms that allow buyers to trade with sellers. Most interaction and economic decisions are done in markets
question
Firms, Consumers, and Government Polices
answer
The primary participants in a market are firm who supply the product and consumers who buy it. But government polices such as taxes also play an important role in the operation of markets.
question
Strategy
answer
A battle plan that specifies the actions or moves that a manager will make to maximize the firm's profit when interacting with a small number of rival firms
question
Game Theory
answer
One tool that is helpful in understanding and developing such strategies is game theory, which we use in several chapters
question
Positive Statement
answer
A testable hypothesis about matter of fact such as cause and effects relationships. Concerns what is or what will happen and describes reality. Does not mean certain, it indicates only that we can test the truth of the statement.
question
Normative Statement
answer
A belief about whether something is good or bad. Concerns what somebody believes should happen and prescribes a course of action. Cannot be tested because a value judgment cannot be refuted by evidence.
question
Elasticity along a downward sloping linear demand curve
answer
changes along the curve
question
If demand is perfectly inelastic
answer
then a 1% increase in price has no effect on quantity demanded.
question
If the cross price elasticity of two goods is -3.5
answer
these two products are relatively elastic complements
question
In regression analysis, the explanatory variables
answer
are the factors that are thought to affect the dependent variable
question
The random error term
answer
captures the effects of unobserved influences on the dependent variable that are not included as explanatory variables.
question
Ordinary Least Squares Regression analysis attempts
answer
select a line that fits the data well
question
An R^2 close to 1
answer
indicates that almost all of the variation in the dependent variable is explained by the regression
question
An estimation method is unbiased if it produces an
answer
estimated coefficient that equals the true coefficient on average
question
If you are testing a null hypothesis
answer
you are testing the hypothesis that the coefficient for an explanatory variable is zero and therefore has no impact on you results
question
If X causes changes in Y
answer
then X and Y are correlated
question
Completeness
answer
There is an indifference curve through every bundle because of assumption
question
More is better
answer
Indifference curves are downward sloping because of this assumption
question
Convexity of indifference curves implies that consumers are willing to
answer
give up more "y" to get an extra "x" the less "x" they have
question
L-shaped
answer
The indifference curves for left shoes and right shoes
question
If both prices decreases by 50%
answer
budget constraint will shift outward in a parallel fashion
question
The price of the good changes
answer
An individual's demand curve for a good can be derived
question
endowment effect
answer
many people place a higher value on what they own then when they consider purchasing
question
As the price of a good rises, the consumer will experience
answer
A decrease in utility, a desire to consume a different bundle, and a southern or western movement on the indifference map
question
By selecting a bundle where MRS=MRT, the consumer is saying
answer
"I am willing to trade one good for the other at the same rate that I am required to do so."
question
non-binding
answer
A price ceiling that is set above the equilibrium price
question
If a model's predictions are correct
answer
none
question
A firm's strategy includes
answer
production levels, which inputs to use, and sales strategy
question
If the government institutes a specific tax for a good that has a perfectly elastic demand curve
answer
the producer must absorb the entire tax
question
In Perfectly Competitive markets
answer
It is easy to find a trading partner, all products are identical, and transactions costs are a very small part of the sale
question
Normative statement
answer
Since the food is bad for you, you should not consume it.
1 of 49
question
Economics
answer
The study of decision-making in the presence of scarcity
question
Managerial Economics
answer
The application of economic analysis to managerial decision-making
question
Managers
answer
Make economic decisions by allocation the scarce resources at their disposal. Must understand behavior of consumers. workers, other managers, and governments to make good decisions
question
Productions Manager
answer
Their objective is normally to achieve a production target at the lowest possible cost. They of course must use the existing factory
question
Human resource managers
answer
They design compensation systems to encourage employees to work hard, They have limited resources and employees are already in the firm
question
Marketing Manager
answer
must allocate an advertising budget to promote the product most effectively. They have a limited marketing budget of course.
question
the firm's top manager
answer
-must coordinate and direct all these activities.
question
Profit
answer
= Revenue-Cost
question
CEO
answer
Must focus on the bottom line: maximizing profit. The ECO is also concerned with how a firm is positioned in a market relative to its rivals. Maximizing profit is more important than beating a rival.
question
Maximizing Profit
answer
-The CEO order the production manager to minimize the cost of producing the particular good or service.
-The CEO ask the market research manager to determine how many units can be sold at any given price, and so forth.
-It would be a major coordination failure if the marketing department set up a system of pricing and advertising based on selling 8,000 units a year, while the production department managed to produce only 2,000
question
Trade-offs
answer
-In an environment of scarcity, management must focus on the trade-offs that directly or indirectly affect profits.
-Evaluating trade-offs often involves marginal reasoning: considering the effect of a small change.
question
How to Produce
answer
-To produce a given level of output, a firm must use more of one input if it uses less of another input.
-Example: Metal and plastic substitute each other in the production of cars. Small increments and reductions of them affect the car's weight, safey, and cost.
question
What price to charge?
answer
-Consumers buy fewer units of a product when its price rises given their limited budgets.
-Examples: When a manger can set the price of a product, the manager must consider theater raising the price offsets the loss from selling fewer units.
question
Consumers
answer
Purchase products subject to their limited budgets
question
Workers
answer
decide on which jobs to take and how much to work given their scarce time and limits on their abilities
question
Rivals
answer
may introduce new, superior products, or cut the prices of existing products.
question
Governments
answer
around the world may tax, subsidize, or regulate products
question
Rational Maximizers and Behavioral Economics
answer
-To understand how others make economic decisions, most economic analysis assumes those 'others' are maximizers: they do the best they can with their limited resources.
-However, in some context, behavioral economics explains those 'others' cannot successfully maximize for a variety of psychological reasons.
question
Markets
answer
are an exchange mechanisms that allow buyers to trade with sellers. Most interaction and economic decisions are done in markets
question
Firms, Consumers, and Government Polices
answer
The primary participants in a market are firm who supply the product and consumers who buy it. But government polices such as taxes also play an important role in the operation of markets.
question
Strategy
answer
A battle plan that specifies the actions or moves that a manager will make to maximize the firm's profit when interacting with a small number of rival firms
question
Game Theory
answer
One tool that is helpful in understanding and developing such strategies is game theory, which we use in several chapters
question
Positive Statement
answer
A testable hypothesis about matter of fact such as cause and effects relationships. Concerns what is or what will happen and describes reality. Does not mean certain, it indicates only that we can test the truth of the statement.
question
Normative Statement
answer
A belief about whether something is good or bad. Concerns what somebody believes should happen and prescribes a course of action. Cannot be tested because a value judgment cannot be refuted by evidence.
question
Elasticity along a downward sloping linear demand curve
answer
changes along the curve
question
If demand is perfectly inelastic
answer
then a 1% increase in price has no effect on quantity demanded.
question
If the cross price elasticity of two goods is -3.5
answer
these two products are relatively elastic complements
question
In regression analysis, the explanatory variables
answer
are the factors that are thought to affect the dependent variable
question
The random error term
answer
captures the effects of unobserved influences on the dependent variable that are not included as explanatory variables.
question
Ordinary Least Squares Regression analysis attempts
answer
select a line that fits the data well
question
An R^2 close to 1
answer
indicates that almost all of the variation in the dependent variable is explained by the regression
question
An estimation method is unbiased if it produces an
answer
estimated coefficient that equals the true coefficient on average
question
If you are testing a null hypothesis
answer
you are testing the hypothesis that the coefficient for an explanatory variable is zero and therefore has no impact on you results
question
If X causes changes in Y
answer
then X and Y are correlated
question
Completeness
answer
There is an indifference curve through every bundle because of assumption
question
More is better
answer
Indifference curves are downward sloping because of this assumption
question
Convexity of indifference curves implies that consumers are willing to
answer
give up more "y" to get an extra "x" the less "x" they have
question
L-shaped
answer
The indifference curves for left shoes and right shoes
question
If both prices decreases by 50%
answer
budget constraint will shift outward in a parallel fashion
question
The price of the good changes
answer
An individual's demand curve for a good can be derived
question
endowment effect
answer
many people place a higher value on what they own then when they consider purchasing
question
As the price of a good rises, the consumer will experience
answer
A decrease in utility, a desire to consume a different bundle, and a southern or western movement on the indifference map
question
By selecting a bundle where MRS=MRT, the consumer is saying
answer
"I am willing to trade one good for the other at the same rate that I am required to do so."
question
non-binding
answer
A price ceiling that is set above the equilibrium price
question
If a model's predictions are correct
answer
none
question
A firm's strategy includes
answer
production levels, which inputs to use, and sales strategy
question
If the government institutes a specific tax for a good that has a perfectly elastic demand curve
answer
the producer must absorb the entire tax
question
In Perfectly Competitive markets
answer
It is easy to find a trading partner, all products are identical, and transactions costs are a very small part of the sale
question
Normative statement
answer
Since the food is bad for you, you should not consume it.

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