# 1. Microeconomics.pdf - Topic one:The economics of...

• 17

This preview shows page 1 - 5 out of 17 pages.

Topic one:The economics of effective management Present value of a series PV = + + PV = Economic profits Opportunity cost Accounting profits Opportunity cost > accounting cost (explicit cost) first Second Net Present Value FVt C0 NPV Decision Rule: 5 forces framework that impact that impact the sustainability of profits The power of consumers and producers in the market is limited by 3 sources of rivalry: Present value analysis : Present value of indefinitely lived Assets: ( Perpetuity)
Firm Valuation and Profit Maximization Firm Valuation With Profit Growth g i Use marginal analysis Marginal Benefit (MB) Marginal Cost (MC) Marginal Principle To maximize net benefits, the managerial control variable should be increased up to the point where MB = MC MB > MC means the last unit of the control variable increased benefits more than it increased costs MB < MC means the last unit of the control variable increased costs more than it increased benefits.
= the total amount of any good or service that an economy’s consumers wish to purchase. Desired . Determinants of buying plans: = a shift in a demand curve represents a change in the quantity demanded at each price. The entire demand curve will shift. = refers to a movement from one point on the demand curve to another point and can result from: A shift in the demand curve with the price held constant; From a movement along a given demand curve due to a change in price. = the amount of products that a firm wishes to sell in a period of time, and are influenced by the following variables: The S curve represents the relationship between quantity S and price; its positive slope indicates that quantity S increases when price increases. = a shift in the S curve indicates a change in the quantity S at each price. The entire S curve will shift. = refers to a movement from one point on the S curve to another point and can result from: . = are those goods where a in average household income that shifts the demand curve for any products to the right, i.e. demand . = are those goods for which the quantity demanded falls as average household income rise. = the price at which Quantity Demanded equals the Quantity Supplied is called the equilibrium price, or the market- clearing price. Price determination: Equilibrium o Price of a commodity regulates quantity demanded and supplied o If price is too high quantity supplied will exceed quantity demanded (surplus) o If price is too low quantity demanded will exceed quantity supplied (shortage) o One price where quantity demanded equals quantity supplied: equilibrium price o Price changes to reach equilibrium: movement along the curve (assumes other variables constant) Gvts sometimes establish a price ceiling , where these are the maximum prices @ which goods/services may be exchanged.
• • • 