Managerial Economics

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How to Identify Long-Run Managerial Costs

In the long run, none of your inputs are fixed. In managing your firm, you can choose any input combination to produce a given quantity of output. This decision ultimately leads to the selection of some [more…]

Introduction to Economies of Scope

Economies of scope exist when the cost of producing two or more goods together is less than the cost of producing each good separately. Economies of scope can result if two or more products share the same [more…]

How to Determine Product Price through Managerial Economics

Given the perfectly competitive firm is a price taker, price is determined through the interaction of supply and demand in the market. Markets always move toward equilibrium, so the market-determined price [more…]

How to Maximize Profit with Total Cost and Revenue

Managerial economics allows firms to compute the price of a product that would maximize profits. To do this, they need total revenue and total cost. Total revenue [more…]

How to Maximize Profit Considering Margins

To maximize profit by using marginal revenue and marginal cost, you focus on the contribution one additional unit of output makes to your revenue relative to its contribution to your cost. [more…]

How to Determine Where Marginal Revenue Equals Marginal Cost

In order to determine the point that maximizes profit, you can determine marginal revenue and marginal cost with calculus. Marginal revenue is the change in total revenue; thus it’s represented as the [more…]

How to Minimize Losses through Managerial Economics

Unfortunately, it isn’t always the case that the firm’s profit is positive. Nevertheless, firms may continue producing in the short run in order to minimize losses. It’s important to remember that firms [more…]

Managerial Economics: How to Determine When to Shut Down

There is a point where you should immediately give up and shut down your business. But first remember that going out of business in the short run doesn’t mean that your losses go to zero. Because some [more…]

Managerial Economics: How to Determine Long-Run Equilibrium

Profit maximization depends on producing a given quantity of output at the lowest possible cost, and the long-run equilibrium in perfect competition requires zero economic profit. Therefore, firms ultimately [more…]

Managerial Economics: The Relationship between Demand, Price, and Revenue in a Monopoly

The ultimate source of power in a market, even a monopolistic market, is the consumer, who still responds to price by changing his demand level. As a consumer, you get to decide whether you’re willing [more…]

How to Maximize Profit Using Total Revenue and Total Cost

Total profit equals total revenue minus total cost. In order to maximize total profit, you must maximize the difference between total revenue and total cost. The first thing to do is determine the profit-maximizing [more…]

How to Maximize Profit with Derivatives

You can use calculus to maximize the total profit equation. Because total revenue and total cost are both expressed as a function of quantity, you determine the profit-maximizing quantity of output by [more…]

How to Maximize Profit with Marginal Units

Quite often it’s easier to determine the profit-maximizing quantity of output by focusing on the last unit you produce, or the marginal unit. In order to add to your profit, an additional or marginal unit [more…]

How a Monopoly Should Produce with Multiple Facilities

Monopolists, as is the case for many other firms, often produce their product in more than one factory. In order to maximize profits, the monopolist must determine how to allocate production among these [more…]

How to Compete: The Cournot Model of Duopolies in Managerial Economics

Oligopolies commonly compete by trying to steal market share from one another. Thus, rather than compete by lowering price — the kinked demand curve indicates that this tactic doesn’t work because everyone [more…]

Managerial Economics: How to Create the Best Worst-Case

The managerial economics theory of maxi-min and mini-max regret criteria for business decisions is all about hoping for the best but expecting the worst. Both of those decision-making criteria focus upon [more…]

How to Compete for Customers: The Bertrand Model of Duopolies in Managerial Economics

The Cournot and Stackelberg duopoly theories in managerial economics focus on firms competing through the quantity of output they produce. The Bertrand duopoly model [more…]

Managerial Economics: Price Leadership in an Oligopoly

The Stackelberg model of oligopoly within managerial economics illustrates one firm’s leadership in an oligopoly. In the Stackelberg model, the leader decides how much output to produce with other firms [more…]

Managerial Economics: How to Win Sequential-Move, One-Shot Games

In many games, one player chooses before another, and it’s difficult to know who has the advantage. In macro-economic models of business situations, if you move first, your rival may be able to neutralize [more…]

Managerial Economics: How to Win Infinitely Repeated Games

The business world is characterized by numerous decisions made over an extended period of time. In managerial economics, game theory helps to figure out the best decision to make. A payoff is associated [more…]

Managerial Economics: How Game Theory Can Help You Preempt Rivals

In managerial economics, game theory helps to figure out the best business decision to make. For example, you’ve developed a highly-regarded bike shop in the local community. A larger neighboring community [more…]

Managerial Economics: How to Test the Threat of a Rival

Managerial economics can help you figure out how much of a threat an new competitor can be. For instance, you’ve heard a rumor that if you decide to expand your business into a rival’s territory, the rival [more…]

Managerial Economics: How to Maximize Short-Run Profit in Monopolistic Competition

Managerial economists have studied monopolistic competition to understand how to maximize profit in that economic model. Because a monopolistically competitive firm produces a differentiated good, short-run [more…]

How to Adjust to Long-Run Profit Elimination in a Monopoly

According to the theories of managerial economics, easy entry and exit indicate that firms have little or no difficulty in moving into and out of a monopolistically competitive market. If firms perceive [more…]

How to Determine the Ideal Amount of Advertising in a Monopoly

Managerial economic theory indicates that one factor contributing to product differentiation in monopolistically competitive markets is advertising. Determining the appropriate or profit-maximizing level [more…]


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