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Managerial Economics - Midterm Study Guide I

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Management Core
MGCR 293
Kamal Salmasi

MANAGERIAL ECONOMICS STUDY GUIDECHAPTER 1Microeconomics decision making undertaken by individualshouseholds and by firms Individuals marketsWages Prices PollutionMacroeconomics behavior of the economy as a whole Inflation TaxesUnemploymentPositive Economics purely descriptive statements or scientific predictionsNormative Economics analysis involving judgementsManagerial Economics application of economic theory and tools of analysis of decisionsmaking science to analyze how a business a notforprofit or governmental entity can utilize its limited resourcesPrescriptive not descriptive microTheory of the Firm indicates how a firm behaves and what its goals are Used to assume that the main objective of a company is to maximize its profits Now assumes main objective to be to maximize its wealthManagerial Objective make choices that increase the value of the firm present value of future profitsPresent Value of Expected Future Profits Total Revenue year tTotal Cost year tInterest rateManagerial Choices Influence TR by managing demand Influence TC by managing production Influence relevant i by managing finances and riskManagerial Constraints Available technologiesResource scarcityLegal or contractual limitationsProfitAccounting Profit Historical costs Legal and reporting requirementsEconomic Profit Market Value Opportunity implicit cost More useful measure for managerial decision making
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