BUS 601 Final Questions and Answers with Verified Solutions |
Latest Update
QUESTION
managerial economics
Answer:
the study of how to use scarce resources most efficiently to achieve a specific managerial goal
QUESTION
economic agents
Answer:
the primary actors in an economy are categorized as consumers and firms (producers)
QUESTION
opportunity costs
Answer:
Defined as the value of the second-best unrealized op on. Every decision involves trade-offs (e.g.,
spending money now vs. saving for later).
QUESTION
opportunity costs example
Answer:
As consul ng rates increase, the subs tu on effect makes leisure more expensive (decreasing
demand), while the income effect may increase the demand for leisure as total wealth rises.
QUESTION
budget constraints
Answer:
Resources are limited. For a consumer, the choice between two goods (X1, X2) is constrained by
income (m) and prices (P): (P1*X1) + (P2*X2) <= m.
,QUESTION
asymmetric information
Answer:
A condition where one party in a transac on has more or be er information on than the other,
which significantly influences decision-making.
QUESTION
emphasis on causality
Answer:
Economics distinguishes between correlation (a relation between two variables) and causality
(where one variable causes the other). Mistaking one for the other leads to "spurious correlations"
QUESTION
the economic challenge
Answer:
How to allocate productive resources to achieve maximum welfare under conditions of dispersed
and asymmetric information.
QUESTION
the scale of needs
Answer:
Human needs are subjective, dynamic, prioritized, and essentially unlimited (tending toward
infinity).
QUESTION
relative price system
Answer:
prices act as an information synthesis and coordination tool
they provide the necessary information for the efficient allocation of resources
QUESTION
institutional requirements
Answer:
efficient markets require private property and the absence of legal barriers to entry and exit
,QUESTION
the role of the entrepreneur
Answer:
entrepreneurs use profit and loss as a signal to guide resource allocation
a successful entrepreneur aims for ROIC > WACC (return on invested Capital > weighted
average cost of capital)
they navigate the gap between purchase price (factors of production) and sale price (goods and
services)
QUESTION
wealth creation cycle
Answer:
this involves the division of labor, increased productivity, capital accumulation, and investment
QUESTION
marginal analysis and decision making
Answer:
an assessment of the additional benefits of an activity compared to the additional costs incurred
by that same activity
QUESTION
decision making tool
Answer:
marginal analysis helps companies maximize potential profits when considering new products,
projects, or points of sale
QUESTION
price-quantity decision
Answer:
Managers must decide what price to charge and how much volume to offer.
Criteria: Decisions are based on maximizing the marginal contribution (the difference between
revenue and variable costs) rather than just market share or simple margins.
QUESTION
variable costs
Answer:
vary in proportion to production/sales (ex. raw materials, direct labor, commissions)
, QUESTION
direct fixed costs
Answer:
Specifically tied to a project; relevant for "go/no-go" decisions.
QUESTION
overhead (fixed) costs
Answer:
Existing administrative costs that do not change with a specific decision; these are not relevant
for marginal price-quantity decisions.
QUESTION
break-even point
Answer:
The level of sales (units or dollars) where total revenue equals total costs, resulting in an
Operating Income (EBIT) of zero.
Formula (Units): Fixed Costs / Unit Marginal Contribution.
Formula ($): Fixed Costs / Marginal Contribution %.
QUESTION
profit targeting
Answer:
To find the volume needed for a specific profit target, the target is added to fixed costs in the
numerator of the break-even formula.
QUESTION
sales mix
Answer:
The proportion of different products/services sold. Because different products have different
marginal contributions, a shift in the sales mix will change overall company profitability.
QUESTION
classical economics (Adam Smith)
Answer:
Differentiates between Natural Price (determined by production costs: labor, natural resources,
and capital) and Market Price (determined by supply and demand).
Latest Update
QUESTION
managerial economics
Answer:
the study of how to use scarce resources most efficiently to achieve a specific managerial goal
QUESTION
economic agents
Answer:
the primary actors in an economy are categorized as consumers and firms (producers)
QUESTION
opportunity costs
Answer:
Defined as the value of the second-best unrealized op on. Every decision involves trade-offs (e.g.,
spending money now vs. saving for later).
QUESTION
opportunity costs example
Answer:
As consul ng rates increase, the subs tu on effect makes leisure more expensive (decreasing
demand), while the income effect may increase the demand for leisure as total wealth rises.
QUESTION
budget constraints
Answer:
Resources are limited. For a consumer, the choice between two goods (X1, X2) is constrained by
income (m) and prices (P): (P1*X1) + (P2*X2) <= m.
,QUESTION
asymmetric information
Answer:
A condition where one party in a transac on has more or be er information on than the other,
which significantly influences decision-making.
QUESTION
emphasis on causality
Answer:
Economics distinguishes between correlation (a relation between two variables) and causality
(where one variable causes the other). Mistaking one for the other leads to "spurious correlations"
QUESTION
the economic challenge
Answer:
How to allocate productive resources to achieve maximum welfare under conditions of dispersed
and asymmetric information.
QUESTION
the scale of needs
Answer:
Human needs are subjective, dynamic, prioritized, and essentially unlimited (tending toward
infinity).
QUESTION
relative price system
Answer:
prices act as an information synthesis and coordination tool
they provide the necessary information for the efficient allocation of resources
QUESTION
institutional requirements
Answer:
efficient markets require private property and the absence of legal barriers to entry and exit
,QUESTION
the role of the entrepreneur
Answer:
entrepreneurs use profit and loss as a signal to guide resource allocation
a successful entrepreneur aims for ROIC > WACC (return on invested Capital > weighted
average cost of capital)
they navigate the gap between purchase price (factors of production) and sale price (goods and
services)
QUESTION
wealth creation cycle
Answer:
this involves the division of labor, increased productivity, capital accumulation, and investment
QUESTION
marginal analysis and decision making
Answer:
an assessment of the additional benefits of an activity compared to the additional costs incurred
by that same activity
QUESTION
decision making tool
Answer:
marginal analysis helps companies maximize potential profits when considering new products,
projects, or points of sale
QUESTION
price-quantity decision
Answer:
Managers must decide what price to charge and how much volume to offer.
Criteria: Decisions are based on maximizing the marginal contribution (the difference between
revenue and variable costs) rather than just market share or simple margins.
QUESTION
variable costs
Answer:
vary in proportion to production/sales (ex. raw materials, direct labor, commissions)
, QUESTION
direct fixed costs
Answer:
Specifically tied to a project; relevant for "go/no-go" decisions.
QUESTION
overhead (fixed) costs
Answer:
Existing administrative costs that do not change with a specific decision; these are not relevant
for marginal price-quantity decisions.
QUESTION
break-even point
Answer:
The level of sales (units or dollars) where total revenue equals total costs, resulting in an
Operating Income (EBIT) of zero.
Formula (Units): Fixed Costs / Unit Marginal Contribution.
Formula ($): Fixed Costs / Marginal Contribution %.
QUESTION
profit targeting
Answer:
To find the volume needed for a specific profit target, the target is added to fixed costs in the
numerator of the break-even formula.
QUESTION
sales mix
Answer:
The proportion of different products/services sold. Because different products have different
marginal contributions, a shift in the sales mix will change overall company profitability.
QUESTION
classical economics (Adam Smith)
Answer:
Differentiates between Natural Price (determined by production costs: labor, natural resources,
and capital) and Market Price (determined by supply and demand).
