Economics

Economics

Goals of firms = Profit Maximization, Maximization of the Shareholders Wealth

Profit theories = Frictional – Abnormal profits observed following unanticipated changes in demand or cost conditions.

Monopoly – Above-normal profits caused by barriers to entry that limit competition

Innovation – Above-normal profits that follow successful invention or modernization

Compensatory – Above-normal rates ot return that reward efficiency

Value Maximization = Optimization of profits in light of uncertainty and the time value of money

Managers behavior and value maximization = is useful for characterizing actual managerial decisions and for developing rules that can be used to improve those decisions.

When does value maximization not happen =

Consequences of not maximizing firm value =

Difference between value maximization and profit maximization and optimization

Definition of and derivation of total revenue and total cost = Total revenue is a function of output – TR=f(Q).

Total cost = fixed and variable expenses – TC=FC+VC

Definition and derivation of marginal revenue and marginal cost = Marginal revenue – change in total revenue associated with 1-unit change in output. MR=?TR/?Q

Marginal cost – change in total cost that will occur with a 1-unit change in the number of units produced. MC=?TC/?Q

Relationship between total revenue and cost and marginal revenue and cost curves.

Components of a firms value

Economic profit against accounting profit

The concepts of Incremental revenue, costs, and profits versus marginals

Marginal cost, when it rises, when it falls, when it is at its maximum

Marginal revenue, when it rises, when it falls and when it is at its maximum

Cost Minimization and where it occurs = activity level that generates the lowest avg. cost, MC=AC

Revenue maximization and where it occurs

Average revenue

Profit maximization and when it occurs

Breakeven point

Relationship between average profit and marginal profit

Relationship between total profit and marginal profit

Simple regression versus multiple regression

Deterministic relationships

F statistics, correlation coefficient, standard error of the estimate, coefficient of determination

Z-statistics and sample size

Good of fit tests

Median, mean, etc. in different data distributions and when they are usable

Derived demand versus direct demand

Changes in demand/supply and changes in quantity demand /supply

Determinants of demand and supply

Impact of shifts in demand and supply curves on equilibrium price and quantity, quantity demanded/supply and demand/supply etc.

Impact of changes in the determinants of demand and supply

Industry versus individual demand and supply

Normal, inferior goods

Substitutes and compliments

Price elasticity of demand and supply

Determinants of price elasticity of demand

Income elasticity of demand and supply

Cross price elasticity of demand

Inferior goods, normal goods, cyclical normal goods, noncyclical normal goods

Given a demand equation and supply equation be able to calculate equilibrium quantity and price. Be able to derive shortages and surpluses given different prices.

Given demand equations and price be able to estimate arc and point elasticity of demand and interpret your results. Also be able to estimate cross price elasticity and income elasticity and e able to interpret