Managerial Economics & Business Strategies Exam 2025

Managerial economics - -Application of microeconomic theory to business problems, aiming to achieve profit maximization. Microeconomics - -Study of individual consumer, business firm, and market behavior to understand business practices and tactics. Industrial organization - -Specialized branch of microeconomics focusing on behavior and structure of firms and industries. Strategic decisions - -Business actions altering market conditions and rivals' behavior to increase and protect the firm's profit. Opportunity cost - -Cost of using resources for production, including market-supplied and owner-supplied resources. Total Economic Cost - -Sum of opportunity costs of market-supplied and owner-supplied resources, including explicit and implicit costs. Economic profit - -Total revenue minus total economic cost, including explicit and implicit costs. Accounting profit - -Total revenue minus explicit costs, not accounting for implicit costs. Value of a firm - -Price for which a firm can be sold, equal to the present value of expected future profits. Risk premium - -Increase in the discount rate compensating investors for uncertainty about future profits. Principal-agent problem - -Conflict arising when the objectives of a firm's owner and manager are not aligned, and monitoring the manager is costly or impossible. Complete contract - -Employment contract protecting owners from deviations by managers from value-maximizing decisions. Moral hazard - -Managers taking hidden actions that harm the owners but further their own interests. Business Business Internal control mechanisms - -Requirements for managers to hold firm equity, increase outsider representation on the board, and finance investments with debt. External mechanism - -Corporate takeovers as a means of control. Price-taking firm - -Unable to set product price, determined strictly by market forces of demand and supply. Price-setting firm - -Able to set product price, with a degree of market power to raise price without losing all sales. Market - -Any arrangement for buyers and sellers to exchange goods or services, reducing transaction costs. Market structures - -Characteristics determining the economic environment for a firm, including number and size of firms, product differentiation, and entry likelihood. Perfect Competition - -Large number of small firms, undifferentiated product, no market power, and no barriers to entry. Monopoly - -Single firm with no close substitutes, protected by entry barriers, allowing price increase without new entrants. Monopolistic Competition - -Large number of small firms with differentiated products, some market power, and no barriers to entry. Oligopoly - -Few firms producing most of the market output, with interdependent profits and actions. Globalization of Markets - -Economic integration of markets worldwide, providing opportunities to sell more goods and services, but also increasing competition. Marginal analysis - -Provides the foundation for understanding