Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FUNDAMENTALS OF FUNDAMENTALS MANAGERIAL MANAGERIAL ECONOMICS ECONOMICS 9th Edition By Mark Hirschey Basic Economic Relations Relations Chapter 2 Chapter 2 OVERVIEW l l l l l Economic Optimization Process Revenue Relations Cost Relations Profit Relations Incremental Concept in Economic Analysis Economic optimal decision l spreadsheet l Equation l dependent variable l independent variable l marginal revenue l revenue maximization l cost functions l short-run cost functions l long-run cost functions l short run l long run l total costs l Chapter 2 Chapter KEY CONCEPTS fixed costs l variable costs variable l marginal cost l average cost l average cost minimization l total profit total l marginal profit l profit maximization rule l breakeven points l incremental change l incremental profit l breakeven point l average cost minimization l multivariate optimization l constrained optimization l Lagrangian technique l Lagrangian multiplier, λ l Economic Optimization Process Process l Optimal Decisions l Best decision produces the result most consistent with managerial most objectives. l Maximizing the Value of the Firm Firm l l Greed vs. Self-interest l Produce what customers want. l Meet customer needs efficiently. Self-indulgence leads to failure. l Customer focus leads to mutual benefit. benefit. l Price and Total Revenue l Revenue Relations l Marginal Revenue l Total Revenue = Price × Quantity. Total Change in total revenue associated with a one-unit change in output. one unit Quantity with highest revenue, MR = 0. Quantity Inefficiency and waste lead to failure. l Revenue Maximization l l Do Firms Really Optimize? l l Optimization techniques are widely employed by successful firms. employed l Total Cost l Cost Relations l Marginal and Average Cost l Total Cost = Fixed Cost + Variable Cost. l Average Cost Minimization l Marginal cost is the change in total cost associated with a one-unit change in associated output. output. l Average Cost = Total Cost/Quantity Average cost is minimized when MC = AC. AC. l Reflects efficient production of a given output level. output l Total and Marginal Profit l Profit Relations Total Profit (π ) = Total Revenue - Total l Profit Maximization l Cost. Cost. l Marginal profit is the change in total profit due to a one-unit change in output, Mπ = Mπ MR - MC. MR Profit is maximized when Mπ = MR – MC Profit Mπ = 0 or MR = MC, assuming profit MR declines as Q rises. declines l Marginal v. Incremental Profits l Marginal profit is the gain from producing one more unit of output (Q). one l Incremental profit is gain tied to a managerial decision, possibly involving managerial multiple units of Q. ...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online