MANAGERIAL DECISION MAKING

Study Guide for Test 1

To do well on Test 1, you need to be able to do the following:

Chapter 2

1.  Determine the profit maximizing decisions for a firm in terms of price and quantity

2.  Determine the revenue maximizing decisions for a firm in terms of price and quantity

3.  Understand the relationship between marginal revenue and demand

4.  Compare the profit maximizing vs. revenue maximizing operating points

Chapter 3

1.  Know the determinants of demand

2.  Calculate the elasticity of demand for any factor affecting demand

3.  Categorize the price elasticity according to the calculated magnitude

4.  Understand the factors affecting the price elasticity of demand

5.  Interpret elasticity and use it to predict the consequences of different actions

6.  Understand how price changes will affect revenue under different price elasticities

7.  Understand how goods are categorized according to the income and cross-price elasticities

8.  Know the conditions required for price discrimination

9.  Know the different forms of price discrimination

10.  Determine the profit maximizing decisions when engaging in third-degree price discrimination

11.  Know the characteristics of information goods

12.  Understand the implications of the different methods of generating revenue from information goods

13.  Understand the implications of network externalities for information goods

14.  Understand the use of customized pricing and versioning for information goods

Chapter 7

1.  Understand the concept of opportunity cost

2.  Calculate  both the accounting and economic profit

3.  Understand the concept of a normal return

4.  Understand how to treat fixed and sunk costs in the decision making process

5.  Understand the reasons for declining average cost (economies of scale)

6.  Understand the reason for constant average cost (constant returns to scale)

7.  Understand the reason for increasing average cost (diseconomies of scale)

8.  Understand how minimum efficient scale can be used to determine the maximum number of firms in an industry

9.  Understand the reasons for economies of scope

10.  Understand the use of the learning curve

Chapters 8-10

1.  Understand the conditions that prevail in perfectly competitive markets

2.  Know the different barriers to entry

3.  Understand the consequences of monopoly behavior

4.  Know the characteristics of monopolistically competitive markets

5.  Calculate the concentration ratio and understand its use in characterizing markets

6.  Calculate the Herfindahl-Hirschman Index and understand its use in characterizing markets

7.  Know the Department of Justice merger guidelines

8.  Understand the relationship between concentration and prices

9.  Understand how bundling can be used to increase revenue and profits

10.  Understand the use of tying and its advantages