ME CH1

Functional areas

Accounting / Finance / Marketing / Human Resource / Management / Production Management

Definition: It is the application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives more efficiently.

Dominick Salvatore

Characteristics: Managerial economics employs economic concepts and principles, which are known as the theory of Firm or '_____ _____ _____ _____'. Thus, its scope is narrower than that of pure economic theory.

Economics of the Firm

This theory stresses that profits arise as a result of friction or disturbances in long-run equilibrium.

Frictional Theory

Characteristics: _____ _____ , _____ _____ , _____ _____ , and _____ _____ of available resources, come under the banner of managerial economics.

Future planning / policy making / decision making / optimal utilization

This theory postulates that economic profit is the reward for the introduction of a successful innovation.

Innovation Theory of Profit

What model asserts that the advent of the modern corporation and the resulting separation of management from ownership, managers are more interested in maximizing their utility, measured in terms of their compensation (salaries, fringe benefits, stock options, etc.), the size of their staff, extent of control over the corporation, lavish offices, than maximizing profits? and who came up with it?

Management Utility Maximization Model / Oliver Williamson

This theory rests on the observation that if the average firm tends to earn only a normal return on its investment in the long run, firms that are more efficient than the average would earn above-normal returns,

Managerial Efficiency Theory of Profit

_____ _____ is used to formalize the economic models postulated by economic theory.

Mathematical economics

Definition: Managerial economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions

McGutgan and Moyer

Monopolists enjoy market power hence can restrict output and charge higher price than under perfect competition. It can profit even in the long run.

Monopoly Theory of Profit

Above normal returns or economic profits are required by the firm to enter and remain in each field or industry.

Risk-Bearing Theory

What model says that corporations seek to maximize sales, after an adequate rate of profit has been earned to satisfy stockholders? and who came up with it?

Sales Maximization Models / William Baumol

Definition: The integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management

Spencer and Siegelman

What model asserts that because of the great complexity of running large modern corporation, a task complicated by uncertainty and a lack of data, managers are not able to maximize profits but can only strive for some satisfactory goal in terms of sales, profit growth, market share, and so on? and who came up with it?

The Satisficing Model / Richard and James March

Characteristics: Knowledge of macroeconomic issues such as _____ _____ , _____ _____ , ____ _____ of the government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise.

business cycles / taxation policies / industrial policy

Characteristics: Managerial economics aims at supporting the management in taking _____ and _____ and policies for future.

corrective decisions / charting plans

Managerial economics is the application of _____ _____and _____ _____ tools to find the optimal solution to managerial decision problems.

economic theory / decision science

The firm can solve its management decision problems by the application of _____ _____ and the tools of _____ _____ .

economic theory / decision science

Characteristics: It is concerned with varied corrective measures that a management undertakes under various circumstances. It deals with _____ _____ , _____ _____ , and achievement of these goals.

goal determination / goal development

Characteristics: Managerial economics incorporates certain aspects of _____ theory. These are essential to comprehending the circumstances and environments that envelop the working conditions of an individual firm or an industry.

macroeconomic

Economic theories refers to _____ and _____.

microeconomics / macroeconomics

Characteristics: Managerial economics is _____. In pure _____ theory, analysis is performed, based on certain exceptions, which are far from reality. However, in _____ _____ , managerial issues are resolved daily and difficult issues of economic theory are kept at bay.

pragmatic / microeconomic / managerial economics

Economic theories seek to _____ and _____ economic behavior.

predict / explain

Characteristics: It studies the _____ and _____of an individual business firm or an individual industry. It aids the management in _____ and evaluating the trends of the market.

problems / principles / forecasting

Econometrics applies statistical tools (particularly _____ _____) its real-world data to estimate the models postulated by economic theory and for forecasting.

regression analysis

The primary goal is to maximize the _____ or _____ of the firm.

wealth / value