After reading Chapter 1 and working the problems for Chapter 1 in the textbook and in this Workbook, you should be able to: Explain the role of economic theory in managerial economics. Contrast routine business practices (or tactics) with strategic decisions. List seven economic forces that influence the long-run profitability of firms. Measure the explicit opportunity cost of using market-supplied resources to produce goods or services. Measure the implicit opportunity cost of using owner-supplied resources to produce goods or services. Compute total economic cost of using resources by summing explicit and implicit opportunity costs of resource use. Calculate economic profit and accounting profit. Define the value of a firm and explain the relation between maximizing profit and maximizing the firm’s value. List several common mistakes that taking a course in managerial economics can help you avoid making. Discuss the problems arising from separation of ownership and control in businesses and suggest some corporate control mechanisms to address these problems. Explain the difference between price-taking firms to price-setting firms. Provide an answer to the question “what is a market?” List and explain the characteristics of four market structures. Discuss implications for managerial decision making of globalization of markets.
1. Managerial economics applies microeconomic theory—the study of the behavior of individual economic agents—to business problems in order to teach business decision makers how to use economic analysis to make decisions that will achieve the firm’s goal—maximization of profit.
Chapter 1: Managers, Profits, and Markets
Economic theory helps managers understand real-world business problems by using simplifying assumptions to abstract away from irrelevant ideas and information and turn complexity into relative simplicity. Microeconomics is the study and...