Question

Costs, and Decisions in Managerial Economics:( two-page paper )

1. what you thought was the most important in concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding. Define and describe what you thought was worthy of your understanding?

2. why you felt it was important, how you will use it, and/or how important it is in managerial economics.

Answer 1

A.. There are various concepts in Costs and Decisions in Managerial Economics. According to me, the most important ones are as follows -:

1. The Incremental Concept -

   Incremental concept is closely associated to the mar­ginal cost and marginal revenues of economic theory.

   The two major concepts in this analysis are incremental cost and incremental revenue. Incremental cost denotes change in total cost, whereas incremental revenue means change in total revenue resulting from a decision of the firm.A decision is profitable if :

• It increases revenue more than costs.

• It decreases costs more as compared to revenue.

2. The Opportunity Cost Concept -

It referes to the cost of sacrifice made in order to pursue a particular course of action. Since resources are scarce, we cannot have everything for ouselves. Thus we need to forego one thing to get the another.

B. The above concepts can be used as follows -:

Uses of Incremental concept in Managerial Economics -:

• To assess the expected increase or decrease in costs and revenue due to decision making.
• To assess the profits of the firm by comparing Marginal Cost and Marginal revenue .
• To assess the magnitude of change in productivity of the firm .

Uses of Opportunity Cost Concept in Managerial Economics -:

• To assess relative prices of different goods.
• To assess normal remuneration to factors of production.
• Proper allocation of factors of production.