BUEC 232 Chapter Notes - Chapter 1: Profit Maximization, Marginal Cost, Marginal Utility

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Chapter 1 Key Terms
Manager: A person who directs resources to achieve a stated goal
Economics: the science of making decisions in the presence of scarce resources
Managerial economics: the study of how to direct scarce resources in the way that most
efficiently achieves a managerial goal
Economic profits: the difference between total revenue and total opportunity cost
Opportunity cost: the cost of the explicit and implicit resources that are forgone when a
decision is made
Present value: the amount that would have to be invested today at the prevailing interest
rate to generate the given future value
Net present value: the present value income stream generated by a project minus the
current cost of the project
Marginal benefit: the change in total benefits arising from a change in the managerial
control variable Q.
Marginal cost: the change in total costs arising from a change in the managerial control
variable Q.
Incremental revenues: the additional revenues that stem from a yes-or-no decision
Incremental costs: the additional costs that stem from a yes-or-no decision
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