MANAGERIAL ECONOMICS

 The responsibility for overseeing and making decisions for these

organizations is the role of MANAGERS.
 We cannot have everything we want because we live in a world with
scarce resources.
 The organization must create VALUE for their customers, which is
the difference between what they acquire and what they produce.
 Managerial Economics is the study of DECISIONS made by people
and businesses regarding the allocation of resources, and prices at
which they trade goods and services.
 MACROECONOMICS takes a top-down approach and looks at the
economy as a whole, trying to determine its course and nature.
 INVESTORS can use microeconomics in their Investment decisions.
 It is the task of ECONOMICS to determine which methods yield the
best results since there are many possible applications of human
labor and many different ways to acquire resources.
 The deployment and manipulation of human resources, financial
resources, technological resources, and natural resources are the
responsibilities of MANAGEMENT.
 Managerial Economics considers the application of ECONOMIC
concepts, economic theories and economic analytical tools to find
solutions for MANAGERIAL problems.
 The process of making estimations about future customer needs and
wants over a defined period, using historical data and other
information. DEMAND FORECASTING.
 A managerial economist RESPONSIBILITY is that one must be able
to make successful forecasts by making in depth study of the internal
and external factors.
 The analysis done to consider the profitability of an investment over
the life of an asset alongside considerations of affordability and
strategic fit is one of the specific decisions to be done by a
managerial economist. INVESTMENT APPRAISAL.
 The action or activity of gathering information about consumers’
needs and preferences before making any pricing or related
decisions. MARKET RESEARCH.
 To be able to establish and maintain contacts with individuals and
data sources one of the RESPONSIBILITY of a manager.
 Profit planning and cost analysis are FUNCTION of a managerial
economist.
 The Application of economic theories, principles and concepts using
mathematical and statistical tools in decision making is the ROLE of a
manager.
 Giving prudent future recommendations in exchanging goods and
services, most often in return for money. ADVICE ON TRADE.
 Maximizing profit is the ultimate goal of the FIRM.
 The study of managerial economics has a / an MICROECONOMIC
focus.
 Managers must consider the state of their environment in making
decisions and the environment includes the overall economy, an
understanding of how to interpret and forecast MACROECONOMIC
measures is useful in making managerial decisions.
 It means that there is a limited quantity of resources to meet unlimited
wants. SCARCITY.
 It is the total amount of income generated by the sale of goods or
services related to the company’s primary operations. REVENUE.
 Economics is the efficient ALLOCATION of the scarce means of
production toward the satisfaction of human wants.
 The Production Possibilities Curve is a model that captures
SCARCITY and opportunity costs of choices when faced with the
possibility of producing two goods or services.
 The production possibilities curve is a graph that shows all of the
different combinations of OUTPUT that can be produced given
current resources and technology.
 The Opportunity Cost is the potential benefit that is given up when
one ALTERNATIVE is selected over another.
 Resources are not only scarce, but they can also be put to various
uses. ALTERNATIVE USERS.
 Resources are limited about their demand and the economy cannot
produce all that people want. SCARCITY RESOURCES.
 The law of diminishing marginal returns states that adding an
additional factor of production results in smaller increases in
OUTPUT.
 The value of self-owned, self-employed resources utilized in
production. IMPLICIT COSTS.
 The value to society of all resources used in the production of an
item. ECONOMIC COST .
 The sum of variable cost and fixed cost. ACCOUNTING COST.
 In economics and business decision-making, it is a cost that has
already been incurred and cannot be recovered. SUNKEN COST.
 Calculated by dividing the total cost by the quantity. AVERAGE
COST.
 The breakeven point is the volume level that separates the range with
economic loss from the range with ECONOMIC PROFIT.
 An approach in computing the breakeven level is to consider how
profit changes as the volume level increases. UNIT CONTRIBUTION
MARGIN.
 When price is lowered, the breakeven level will increase and if the
price is raised, the breakeven level will drop. This is an example of
the LAW OF DEMAND.
 The third step in the manager’s decision making process is to.
DISCOVER THE ALTERNATIVE.
 The fourth step in the manager’s decision making process is to:
FORECAST THE CONSEQUENCES.
 When the Revenue function R = X – X2 and the Profit function π = –
X2 + X – b, the breakeven level is at … The point where the R
curve and π curve are at its apex.
 To develop a demand curve it is assumed that the relationship
between price and quantity is linear. It means The quantity will be
proportional to the change in price.
 This relationship is called a demand curve when there is … A need
to estimate the relationship between the price charged and the
maximum unit quantity that could be sold.
 Marginal Analysis analyze relationships of functions from: The
perspective of how the function changes in response to a small
change in the quantity.
 Shutdown rule indicates. If a business does not see
circumstances changing whereby revenue will be getting better
or costs will be going down, although it may be a net gain to
operate for some additional time.
 In a modern society, consumption is largely facilitated by Purchases
for goods and services.
 Giffen goods is best described by A situation where consumption
of a good or service may increase in response to a price
increase or decrease in response to a price decrease.
 The marginal revenue measures the Change in revenue in
response to a unit increase in production level.
 The marginal profit measures the Change in profit resulting from a
unit increase in the quantity.
 The resulting increase in their hypothetical quantitative value for
satisfaction if the consumer were to receive one more unit of some
good or service is called. MARGINAL UTILITY.
 Business is hard these days. To be able to compete fairly well
managers must use the demand function and demand elasticity
in forecasting of demand and the business.
 Elasticity of demand is the ratio of PERCENTAGE change in demand
to the percentage change in its determinant factor.
 Q = 25,800- 800ap + 4A + 200CP + 0.4DIPC. This relationship is
called a demand function.
 Price elasticity of demand for a good is inelastic if a small change in
price causes people to make no change or almost no change in how
much they demand go that good.
 Price Elasticity of Demand for a good is said to be INELASTIC if a
small change in price causes people to make no change or almost no
change in how much they demand of that good.
 Businesses typically evaluate the income elasticity of demand for
their products to help predict the impact of a business cycle on
product sales.
 A unitary elasticity of demand is when quantity changes at the same
rate as price.
 Essential economic activities are production distribution,
consumption, and resource management.
 Price DISCRIMINATION is the term for charging different prices to
different customers.
 SHORT run is the certain period in the future, at least one input is
fixed while others are variable.
 The amount of money that has to be paid to acquire a given product
is the price. TRUE
 A CONSUMER decision is considered short run when her
consumption will occur soon enough to be constrained by existing
household assets, personal commitments, and know-how.
 Decisions affecting consumption far enough into the future so that
any such adjustments can be made are called long-run decisions.
TRUE
 FIRST-degree price discriminations is an attempt by the seller to
leave the price unannounced in advance and charge each customer
the highest price they would be willing to pay for the purchase.
 Sometimes there is no set price, and the buyer and seller negotiate a
price is an example of first-degree price discrimination. TRUE
 When there are multiple determinants of demand, the demand curve
can be interpreted as a reduced view of the demand function where
only the price of the product is allowed to vary: Any other variables
are assumed to remain at a fixed level.
 For the demand function Q = 64,000 – 800P, the coefficient of P
means: For every one unit of increase in P results to 800
decrease in quantity demand.
 For the demand function Q = 66,000 – 800P, the constant represents:
None of the above-One other factor of demand; Two other
determinants of demand; Three other determinants or factors of
demand.
 From the original demand function Q = 64,000 – 800P to the new
demand function Q = 66,000 – 800P means: There was a change in
one of the determinants excluding P.
 The purpose of identifying the key determinants of demand and
developing demand functions: None of the above
 The equation (Q1-Q2)/(Q1+Q2) ÷ (P1-P2)/(P1+P2) represents the:
Elasticity of demand with an absolute value.
 If the absolute value of the elasticity of demand is greater than 1: The
quantity changes faster than the price.
 The ratio of percentage change in demand to the percentage change
in its determinant factor: A measurement called elasticity of
demand.
 Assessing the elasticity of demand relative to changes in the price of
the good or service being consumed: None of the above- Is called
the elasticity of demand for price; Is called the income elasticity of
demand; Is called the price elasticity relative to income.
 Price elasticity are usually negative numbers because: Of the law of
demand.
 Goods and services are sometimes sold or purchased via an auction
is an example of: First-degree price discrimination.
 Successive price drops can continue until it would be unprofitable for
the seller to drop the price any lower is a characteristic of: Sliding
price.
 Membership stores that require customers to pay an entry fee before
being allowed to shop is an example of: Two-part price of second-
degree price discrimination.
 One of the justification for the practice of third-degree price
discrimination is: One group may be more sensitive to price than
the other group.
 Price charge is the price for multiple items. It gives lower prices for
volume purchases. Is an example of: None of the above- Negotiated
price; Two-part price; Sliding price.
 Demand forecasting includes identifying the factors of demand that
are quantifiable in for the company and or industry. TRUE
 Elasticity is the responsiveness of one economic variable to change
in another. TRUE
 Computing for the elasticity of demand helps producers, managers
and governments to make effective economic decisions. TRUE
 Cross elasticity of demand (XED) measures the responsiveness of
consumer demand in one good over the change in the price of
another good. TRUE
 The demand for many goods analyzes not only the price of the
demand of one good but also the changes in the prices of other
related goods. TRUE
 DISECONOMIES of scale happen when a company or business
grows so large that the costs per unit increase.
 The total price paid for the resources used to manufacture a product
or create a service, such as raw materials, labor, and others is the
production cost. TRUE
 COST is the monetary value that has been spent by a company in
order to produce something.
 ECONOMIES of scale is the cost advantages reaped by companies
when production becomes efficient.
 The making or manufacturing goods and products from raw materials
or components is the process of PRODUCTION.
 In the demand function Q = 3 – 47P the coefficient – 47 means: For
each Php 1.00 increase in P, there will be a corresponding
 decrease in Q of 47; For each Php 1.00 decrease in P, there will
be a corresponding increase in Q of 47.
 In computing for the elasticity of demand: The negative sign on the
number is not considered in the final answer.
 Elasticity determines the: Sensitivity of demand for Q to
corresponding change in the factors of demand; Percentage
change in the demand for Q to a percentage change in the
factors of demand.
 The price elasticity of demand is usually analyze as: The demand
decreases when the price increases; Price elasticities are
positive for Giffen goods; The principle in the law of demand.
 The income elasticity of demand YED = 0 means: When the
quantity demanded is the same even with changes in income.
 A good is considered counter cyclic when the income elasticity of
demand is: An increase in income comes with a decrease in the
quantity demanded.
 Electricity, water and personal hygiene products are considered
necessity goods because: They are normal goods with income
elasticity of demand between 0 and 1.
 Kerosene as an inferior good is cheaper than liquefied petroleum gas
LPG: Has a negative income elasticity of demand as income
rises consumer buy fewer inferior goods.
 Consumer discretionary products such as branded shirts, pants and
dresses are sensitive to consumer income because they represents:
Luxury goods that tend to be very sensitive to changes in
 consumer income; Demand for consumer discretionary goods
tends to drop as income decreases.
 What does an income elasticity of demand of –0.9 means to
consumption of 10 hamburgers per week? The increase in income
resulted to a decrease in hamburger consumption by 10% per
week.
 Rice is an example of goods that is inelastic to changes in income in
the income elasticity of demand (YED): Yes, because 0<YED<1 rice
consumption tend to have the same demand regardless of
income.
 Income elasticity of demand (YED) can be presented by the Engel
curve with Income on the Y axis and Quantity demanded on the X
axis. With the graph shown below: The YED = 2 is elastic
considered a cyclic good.

 Economist uses income elasticity of Demand (YED) to calculate

efficient use of resources to changes in demand. For example if Time
Like Company (TLC) sells their product to call center agents (CCA) in
Makati Center with a YED of 1.8 and to CCA in Ortigas Center with
 YED of 0.7. With the bright prospects in the economy it was projected
that income will rise by 7.2% in Makati Center and income will rise by
10% in Ortigas Center. As the business manager of TLC, in what
business center would you increase your business concerns more
with the limited resources available: Business will focus on Makati
Center with increase in demand of 12.96%.
 The gross domestic product (GDP) was forecasted to decrease by
30% from 9% growth last year. The real estate (RE) and mining
businesses having an Income elasticity of demand (YED) of 4.1 and
2.7, respectively. As the financial manager, what would be the data
estimates available to base any decisions for investments: There will
be a decrease in demand of 12.3% and 8.1% in RE and mining,
respectively.
 The gross domestic product (GDP) was forecasted to decrease by
30% from 9% growth last year. The real estate (RE) and mining
businesses having an Income elasticity of demand (YED) of 4.1 and
2.7, respectively. As the financial manager planning for investments
opportunities, what would you recommend: Look for other options
and wait for opportunities until GDP recovered.
 Cross elasticities of demand are calculated to measure the response
of demand to price changes for: A different substitute good or
service; A different complementary good or service.
 In the analysis of linear pricing under price discrimination, consider
the graph below: None of the above- The point A with the red
shaded area represents the revenue at wholesale price; The point B
with the green shaded area represents the revenue at retail price;
 The distance between points A to B with the clear area represents the
revenues for both wholesale and retail prices.

 In the analysis of linear pricing under price discrimination, consider

the graph below: The price of $ 7.60 represents the retail price at
point A; MC = D at point C is the breakeven price and quantity; Point
C represents the lowest price and maximum output for wholesale
transaction. ALL OF THE ABOVE

 A new model of cell phone came into to market initially priced as high
as the branded ones. However after sometime its price dropped by
 20% because of new models available in the malls. This is an
example of: sliding price.
 A prior study to identify the price elasticity of the customers about the
product sold must be done: 3rd degree price discrimination.