Ae11 Reviewer

• Managerial Economics


  A subfield of economics that places special emphasis on the study of choice related to the allocation of scarce resources
• Economics


  The study of choice related to the allocation of scarce resources
• Microeconomics


  • Studies phenomena related to goods and services from the perspective of individual decision-making entities—that is, households and businesses
• Macroeconomics


  • Provides measures and theories to understand the overall systematic behavior of an economy
• Value for customers


  The difference between what they acquire and what they produce
• The thesis of this book is that those managers who understand economics have a competitive advantage in creating value
• Revenue


  The total monetary value of the goods or services sold
• Cost


  The collective expenses incurred to generate revenue over a period of time, expressed in terms of monetary value
• Variable costs


  Cost elements related to the volume of sales; as sales go up, the expenses go up
• Fixed costs


  Costs that are largely invariant to the volume of sales, at least within a certain range of sales volumes
• Profit


  The difference between the revenue and cost (found by subtracting the cost from the revenue)
• Loss


  When costs exceed revenue, there is a negative profit
• Opportunity cost


  The forfeited income that is equivalent to a charge against the operation of the business
• Breakeven point


  The volume level that separates the range with economic loss from the range with economic profit
• Demand curve


  The relationship between the price charged and the maximum unit quantity that could be sold
• Marginal revenue


  The change in revenue in response to a unit increase in production level or quantity
• Marginal cost


  The change in cost corresponding to a unit increase in the production level
• Marginal profit


  The change in profit resulting from a unit increase in the quantity
• The most profitable production level is where marginal revenue is equal to marginal cost
• Shutdown rule


  If the selling price per unit is at least as large as the average variable cost per unit, the firm should continue to operate for at least a while; otherwise, the firm would be better to shut down operations immediately
• Marketing decisions


  Decisions related to demand and pricing
• Consumer


  Someone who makes consumption decisions for herself or for her household unit
• Theory of the consumer


  A consumer plans her purchases, the timing of those purchases, and borrowing and saving so as maximize the satisfaction she and her household unit will experience from consumption of goods and services
• Utility


  A hypothetical quantitative value for satisfaction that a consumer receives from a pattern of consumption
• Marginal utility


  The resulting increase in a consumer's utility from receiving one more unit of some good or service
• Substitution effect


  The consumer's response to a changing price to restore balance in the ratios of marginal utility to price
• Income effect


  The impact of a price change on a consumer's purchasing power
• Giffen goods


  A situation where consumption of a good or service may increase in response to a price increase or decrease in response to a price decrease, due to a strong income effect
• Marketing mix


  The composition of decisions on price, promotional activities, location, and channel
• Complementary relationship


  Consumption of some goods and services can necessitate greater consumption of other goods and services
• Demand function


  The function that states the relationship between two or more variables, such as price
• Elasticity of demand


  The ratio of percentage change in demand to the percentage change in its determinant factor
• Own-price elasticity


  Assessing the elasticity of demand relative to changes in the price of the good or service being consumed
• Price elastic


  Goods and services with a price elasticity more negative than -1
• Price inelastic


  Goods and services with a price elasticity between 0 and -1
• Short-run decision


  A consumer decision constrained by existing household assets, personal commitments, and know-how
• Long-run decision


  A consumer decision affecting consumption far enough into the future so that any adjustments can be made
• Price discrimination


  Charging different prices to different customers
• First-degree price discrimination


  An attempt by the seller to leave the price unannounced in advance and charge each customer the highest price they would be willing to pay
• Second-degree price discrimination


  Creating alternative pricing methods that distinguish high-volume buyers from low-volume buyers