Textbook Notes (369,072)
Canada (162,366)
BUS 207 (14)
Chapter 2

Chapter 2 Vocab and Notes

4 Pages

Business Administration
Course Code
BUS 207
Karen Ruckman

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Managerial EconomicsChapter 2 Optimal Decisions Using Marginal Analysis SITING A SHOPPING MALL Marginal Analysis is the process of considering small changes in a decision and determining whether a given change will improve the ultimate objectiveMake a small move to a nearby alternative if and only if the move will improve ones objectiveKeep moving always in the direction of an improved objective and stop when no further move will helpA SIMPLE MODEL OF THE FIRMA firm produces a single good or service for a single market with the objective of maximizing profitIts task is to determine the quantity of the good to produce and sell and to set a sales priceThe firm can predict the revenue and cost consequences of its price and output decisions with certaintyThe firm can maximize its total profit by separately maximizing the profit derived from each of its product linesRevenueAll other factors held constant the higher the unit price of a good the fewer number of units demanded by consumers and consequently sold by firmsThe law of demand operates at several levelsThe firm uses the Demand Curve as the basis for predicting the revenue consequences of alternative output and pricing policiesIt allows the firm to predict its quantity of sales for any price it chargesRevenue can be computed as the product of price and quantityThe price equation usually is referred to as the firms Inverse Demand EquationThe demand equation furnishes a quantitative snapshot of the current demand for the firms product as it depends on priceWe view the demand curve as Deterministic at any given price the quantity sold can be predicted with certainty The demand equation representation remains valid so long as the margin of error in the pricequantity relationship is relatively smallThe firm cannot set both Q and P independentlyThere is a fundamental tradeoff between P and Q in generating revenue o Operating at either extreme selling a small quantity at high prices or a large quantity at very low prices will raise little revenueCostThe Cost Function shows how total cost depends on quantityBy substituting in a given quantity we can find the resulting total cost ProfitThe profit is computed as the difference between the revenue and costThe Profit Function RC
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