CH2 study guide - Chapter 2 ECONOMIC OPTIMIZATION The...

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Unformatted text preview: Chapter 2 ECONOMIC OPTIMIZATION The purpose of managerial economics is to provide a systematic framework for problem analysis and solution. The pluses and minuses of various decision alternatives must be carefully measured and weighed. Costs and benefits must be reliably measured; time differences must be accurately reflected. The collection and characterization of relevant information is the most important step of this process. After all relevant information has been gathered, managers must accurately state the goal or goals that they seek to achieve. Without a clear understanding of managerial objectives, effective decision making is impossible. Once all relevant information has been gathered, and managerial objectives have been clearly stated, the managerial decision making process can proceed to the consideration of decision alternatives. Effective managerial decision making is the process of efficiently arriving at the best possible solution to a given problem. If only one solution is possible, then no decision problem exists. When alternative courses of action are available, the decision that produces a result most consistent with managerial objectives is the optimal decision. The process of arriving at the best managerial decision, or best problem resolution, is the focus of managerial economics. This chapter introduces fundamental principles of economic analysis, which are essential to all aspects of managerial economics and form the basis for describing demand, cost, and profit relations. Once basic economic relations are understood, the tools and techniques of optimization can be applied to find the best course of action. CHAPTER OUTLINE MMMMMMMMMMMMMMMCCLXXII. ECONOMIC OPTIMIZATION PROCESS A. Optimal Decisions: The best decision produces the result most consistent with managerial objectives. 1. Economic concepts and methodology are used to select the optimal course of action in light of available options and objectives. B. Maximizing the Value of the Firm: In managerial economics, the primary objective of management is maximization of the value of the firm. Influences that must be considered include: 5892.prices and the quantity sold. 5893.cost relations. 5894.the appropriate discount rate. MMMMMMMMMMMMMMMCCLXXIII. REVENUE RELATIONS VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV...
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This note was uploaded on 11/13/2011 for the course MIS 4100 taught by Professor Maxnorth during the Spring '11 term at Birmingham-Southern College.

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CH2 study guide - Chapter 2 ECONOMIC OPTIMIZATION The...

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