Professional Documents
Culture Documents
-Production decisions are made according to -age under the Philippine Labor law who is
customs and traditions. allowed to work.
-The system works under the principle that the -The cost for choosing to use resources for one
interest of society should prevail over that purpose to sacrifice the next best alternative for
individual. the use of those resources.
-A large number of relatively small firms sell an -The state of knowledge concerning the
undifferentiated product in a market with no combination of resources to produce goods and
barriers to the entry of new firms. services.
-Market characteristics that determine the -A movement along a given supply curve that
economic environment in which a firm occurs when the price of good changes.
operates.
Shortage
Price-Taking Firms
-Exists when the quantity demanded exceeds
A firm that cannot sell the price of the product quantity supplied.
it sells, since price of the product is determined
Direct Demand Function
strictly by the market forces of demand and
supply. -A table, a graph, or an equation that shows
how quantity demanded is related to produce
Price-setting Firm
price, holding constant the five other variables
-A firm that can raise its price without losing of that influence demand.
its sales.
Substitutes in Production
Total Economic Cost
-Goods in which an increase in the price of one
-Sum of opportunity cost of market supplied good relative to the price of another good
resources plus opportunity cost of owner causes producers to increase production of the
supplied resources. now higher priced goods and decrease
production of other good.
Monopoly
Quantity supplied
-A single firm, protected by some kind of barrier
to entry, produces a product for which no close -The amount of a good or service offered for a
substitutes are available. sale during a given period of time (week,
month, etc.)
Explicit Cost
Economic Value
-Monetary opportunity cost of using market
supplied resources. The maximum amount of any buyer in the
market is willing to pay for the unit which is
Business Practices and Tactics
measured by the demand price for the unit of
-Routine/everyday business decision managers the good.
must make to earn the greatest profit under the
Substitutes
greatest profit under prevailing market
conditions facing the firm. -An increase (decrease) in the price of one of
the goods causes consumers to demand more
Transaction Cost
(less) of the other good, holding all other
-Cost of making a transaction happen, other factors constant.
that the price of the good or service itself.
Complements in production
Economic Theory
-Goods on which an increase in the price of one
-It helps managers to understand real world good, relative to the price of another good,
business problems, it uses simplifying causes producers to increase production for
assumptions to turn complexity into relative both goods.
simplicity.
Ceiling Price
CHAPTER 2-QUIZ -The maximum price the seller to charge for a
Floor Price good. When the price is below equilibrium, a
shortage occurs.
-The minimum price the government permits
seller to charge for a good. When the price is
above equilibrium, a surplus occurs.
Producer Surplus Minimization problem
-For each unit supplied, the difference between An optimization problem that involves
market price and the minimum price producers minimizing the objective function.
would accept to supply the unit. (its supplies
Unconstrained optimization
price)
An optimization problem in which the decision
Market Equilibrium
maker can choose the level of activity from an
-A situation in which at the prevailing price unrestricted set of values
consumers can buy all of the good they wish
Ex., profit maximization in the long-run
and producers can sell all of the good they wish.
Constrained optimization
Demand Curve
An optimization problem in which the decision
-A graph showing the relation between quantity
maker chooses values for the choice variables
demanded and price when all other variables
from a restricted set of values.
influencing quantity demanded are held
constant. Ex. optimal combination of capital and labor
given a cost constraint
Social Surplus
Continuous variables
-The sum of consumer surplus and producer
surplus, which is the area below demand and Can choose from uninterrupted span of
above supply over the range of output variables
produced and consumed.
Discrete variables
Intermediate
Must choose from a span of variables that is
-Term referring to the unpredictable change in interrupted by gaps.
either equilibrium price or quantity when the
direction of change depends upon the relative Marginal benefit (MB)
magnitudes of the shifts in demand and supply Change in total benefit (TB) caused by an
curves. incremental change in the level of the activity
Quantitative Forecast Marginal cost (MC)
-A Forecast that predicts both the direction and Change in total cost (TC) caused by an
the magnitude of the change in economic incremental change in the level of the activity.
variable.
Marginal variables
Quantity Demanded
measure rates of change in corresponding total
-the amount of good or services are willing and variables
able to purchase during a given period of time
(week, month, etc.) Marginal benefit & marginal cost
Market Clearing Clearance are also slopes of total benefit & total cost
curves, respectively
-The price of a good at which buyers can
purchase all they want and sellers can sell all If marginal benefit > marginal cost
they want at that price. Activity should be increased to reach highest
Complements net benefit
-An increase (decrease) in the price of one of If marginal cost > marginal benefit
the goods causes consumers to demand less Activity should be decreased to reach highest
(more) of the other good, all other things held net benefit
constant.
Optimal level of activity
CHAPTER 3
When no further increases in net benefit are
Maximization problem possible.
An optimization problem that involves Sunk costs
maximizing the objective function.
Previously paid & cannot be recovered
Fixed costs
Ratio MB/P