Managerial Economics Exam 1.docx - Managerial Economics Exam 1 Chapter 1 Managerial Economics \u2013 refers to the application of economic theory and the

Managerial Economics Exam 1.docx - Managerial Economics...

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Managerial Economics Exam 1Chapter 1Managerial Economics– refers to the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve its aims or objectives most efficiently. An example of this is, A firm may seek to maximize profits subject to limitations on the availability of essential inputs and in the face of legalconstraints. A hospital may seek to treat as many patients as possible at an “adequate” medical standard with its limited physical resources (physicians, technicians, nurses, equipment, beds) and budget. The goal of a state university may be to provide an adequate education to as many students as possible, subject to the physical and financial constraints that it faces. Similarly, a government may seek to provide a particular service (which cannot be provided as efficiently by business firms) to as many people as possible at the lowest possible cost. In all these cases the, the organization faces management decision problems as it seeks to achieve its goals or objective, subject to the constraints that it faces. The goals are different but the basic decision-making process is the same.Relationship to economic theory: an organization can solve its management decision problems by the application of economic theoryand the tools of decision science. Economic Theoryrefers to microeconomics and macroeconomics. Microeconomicsis the study of the economic behavior of individual decision-making units, such as individual consumers, resource owners, and business firms. Macroeconomicsrefers to the study of the total or aggregate level of output, income, employment, consumption, investment, and prices forthe economy as viewed by the whole. Microeconomic theory of the firm is the most important element is managerial economics.
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Economic theories seek to predict and explain economic behavior. Economic theories usually begin with a model. This abstracts from the many details surrounding an event and seeks to identify a few more important determinants of the event. An example of this is, the theory of a firm assumes the firm seeks to maximize profits, and on the basis of it predicts how much of a particular commodity the firm should produce under different forms of market structure and organization.
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