REVIEWER FOR MANEGERIAL ECONOMICS

Consumer Behavior – An average, reasonable individual can tell that endorsements affect the buying behavior of any
community.
Utility – an Individual’s pleasure, happiness, or satisfaction.
Consumer Theory – argues that individual consumption decisions are always made because people desire to
maximize their satisfaction from consuming various goods and services.

FOUR FACTORS THAT BUYERS ARE COMPLETELY AWARE OF:

1. Spending an any good or service is exactly equal to the individual’s savings and income.
2. People are aware of the range of products available in the market.
3. People are aware of the prices of the products in the market.
4. People are aware of the capacity of the product. It assumes that when we buy the product, we already know its
functionality.
Measuring Utility – companies conduct survey whenever you purchase a product or avail their service is because
they would like to know the level of your satisfaction.
Indifference Curve – also known as consumption bundles are certain combinations of two commodities that will
yield them a certain level of utility. It is a graph that does not intersect.
The Budget Line – graph that shows the combination of goods or services of a person, where the total amount of
money spent is proportionate to his or her income.
Consumer’s Choice – It is a choice of the costumers given the two utility-maximizing measures. To maximize utility
of an individual, it must satisfy two conditions;
1. The decision must lie on the budget line.
2. The decision must lie on the indifference curve that is depicting the most preferred combination of the
consumer.
Utility Function – show an individual’s value of the utility attained from consuming each conceivable bundle of
goods.
Cardinal – are based in the number of “util” or the unit of satisfaction
Ordinal – are based on rankings.
Total Utility (TU) – It is a total satisfaction and increases depends how many is the product used or intake.
Marginal Utility (MU) – Added utility to the Total Utility (Current Utility – Previous Utility)
Law of Diminishing Marginal Utility – This law argues that as you increase your intake of a certain commodity, you
will have a declining satisfaction on the next units of the same commodity that you will consume.
Law of Diminishing Marginal Product – is the scenario where the marginal product of the input decreases as the
quantity of the input increase.
The Law of Diminishing Returns – As additional units of a variable input are combined with a fixed input, after a
point the additional output (Marginal Product) start to diminish. This is the principle that after a point, the marginal
product of a variable input declines
Marginal Rate of Substitution (MRS) – is the maximum amount of good that a consumer is willing to give up to
obtain one additional unit of another good.

THREE PROPERTIES OF COSUMER PREFERENCES;

1. Completeness – means that in every pair of consumption bundle (X and Y)
 X is preferred to Y
 Y is preferred to X
 The consumer is indifferent between X and Y.
2. Transitivity – can be described by having commodities X, Y, and Z. It means that if X is preferred to Y, and
Y is preferred to Z, then X must be preferred to Z.
3. Non-Satiation – simply more is better.
Engel Curve – shows the relationship between the amounts of product that people are willing to buy with their
income.
Revenue – is driven by the amount paid by the buyers to sellers (price) in purchasing a commodity and the number of
commodities being purchased (Quantity).
Total Revenue = Price x Quantity
Accounting Income – Mathematically computes the net profit. It is the most useful and basic common understanding
of income. This income is the income that is reflected in the business records.
Total Cost – also known as Explicit Cost is the actual cost being paid by the firm to its suppliers, employees, and
other expenses.
Explicit Cost – Labor and Raw materials.
Accounting Income = Total revenue – Total Cost
Opportunity Cost – Its concept is the value of something is what you give up to get it. It is also known as Implicit
Cost.
Implicit Cost – Land, Equipment, Factory and Building.
Economic Profit – A cost that is an economist also considers to arrive his/her profit.
Economic Profit = Total Revenue – [Explicit Cost + Implicit Cost]
Price – are important in income management and costing decisions
Price has two functions;
1. Rationing – is the change in price attributed to the distribution resources to consumers who need the most.
This is like distributing resources (which are scare) equitably
2. Allocative – is the changes in prices that direct resources away from overcrowded markets and toward
markets that are underserved. It relates to the concept of utilitarianism – this concept was used by different
counties as part of their measures to reduce employment rate.
Production – Is a process in which firm transformation its inputs (factors of production) to output.
Production Function – shows the relationship between quantity of inputs used to create a good and quantity of output
produced.
Marginal Product – is the change in output from one additional unit of input.
FACTORS OF PRODUCTION
 Land: Land is heterogeneous in nature. The supply of land is fixed and it is permanent factor of production
but it is productive only when the application of capital and labor.
 Labor. The supply of labor is inelastic in nature, but it differs in productivity and efficiency and it can be
improved.
 Capital: is a man-made factor and is mobile but the supply is elastic.
 Organization: the organization plans, super vises, organizes and control the business activity and also takes
risks.
Q = (Land, Labor, Capital and Organization)
Q= F( L,L,C,O)
The major objective of any business organization is maximizing the output with minimum cost. To achieve the
maximum output the firm has to utilize the input factors efficiently.

Cobb-Douglas Production Function - The maximum amount of output that can be produced with a given level of
inputs.
THE SHORT RUN VERSUS THE LONG RUN
1. Short run – some inputs (Land, Capital) are fixed in quantity. The output depends on how much of other
variables inputs used.
2. Long run – all inputs factors are variables
MEASURES OF PRODUCTIVITY
 Total Production (TP): the maximum level of output that can be produced with a given amount of input.
 Average Production (AP): output produced per unit of input AP=Q/L
 Marginal Production (MP): the change in total output produced by the last unit of input
 Marginal production of labor = Q/ L (i.e. change in the quantity produced to a given change in the labor)
 Marginal production of capital – Q/ K ( i.e. change in the quantity produced to a given change in the
capital)
Isoquants – shows combinations of two inputs that can produce the same level of output.
Fixed Costs (FC) – are costs do not vary with the quantity produced.
Variable Costs (VC) – are costs that vary with the quantity produced.
Total Costs (TC) – is the combination of Fixed Costs and Variable Costs (TC = FC + VC)
Average Costs – are also called per-unit cost and can be determined by dividing the firm’s total cost to the quantity of
output it produces.
¿Cost
AFC=
Quantity
Variable Cost
AVC=
Quantity
Total Cost
ATC=
Quantity
ATC = AFC + AVC
Marginal Cost (MC) – is the increase in total cost (TC) from the additional unit of production.
Efficient Scale Output – The lowest point of the ATC.
Efficient Scale – is the quantity that minimizes ATC.
The Long-Run Average Total Cost (LRATC) – is derived from different Short-Run Average Total Cost
(SRATC).
Economies Of Scale – refers to the state where long-run average total cost falls as the quantity of output increases.
Constant Returns To Scale – refers to the state where long-run average total cost stays the same as the quantity of
output increases.
Diseconomies of Scale – refers to the state where the long-run average total cost rises as the quantity of output
increases.
RETURN TO SCALE
 Return To Scale - Rate at which output increases as inputs are increased proportionately.
 Increasing Returns To Scale - Situation in which output more than doubles when all inputs are doubled.
 Constant Return To Scale - Situation in which output doubles when all inputs are doubled.
 Decreasing Returns To Scale - Situation in which output less than doubles when all inputs are doubled.
Market Structure – are the individual characteristics of each particular industry in our economy.
1. Number of firms in the industry
2. Nature of the product produced
3. Degree of Power each firm has
4. Degree to which the firm can influence price
5. Non-price competition or advertisement
6. Profit Levels
7. Extent of barriers to entry
Perfect Competition – refer to only one market structure when they talk about agricultural products.
1. Number of firms in the industry – has sellers/players
2. Nature of the product produced – Identical or homogenous
3. Degree of Power each firm has – many sellers offering the same products, each producer supplies a very small
portion of the total industry output.
4. Degree to which the firm can influence price – No influence to pricing
5. Non-price competition or advertisement – No need for advertisement
6. Profit Levels – Very small
7. Extent of barriers to entry – Easy entry and Exit from the industry
Monopolistic Competition – refers to a market situation with a relatively large numbers of sellers offering similar but
not identical products.
1. Number of firms in the industry – Many members
2. Nature of the product produced – Offers similar but not identical
3. Degree of Power each firm has – either a large or small proportion of total industry output.
4. Degree to which the firm can influence price – some element of control over price
5. Non-price competition or advertisement – Uses advertisement to make the brand popular
6. Profit Levels – Higher than perfect competition
7. Extent of barriers to entry – Easy barriers to the entry and exit
Oligopoly – when there are few large firms producing a homogenous or differentiated product.
1. Number of firms in the industry – Few large firms
2. Nature of the product produced – Often Identical such as internet, broadcast or calls.
3. Degree of Power each firm has – Big impact on total industry demand
4. Degree to which the firm can influence price – consider their rival’s responses.
5. Non-price competition or advertisement – Uses advertisement to make the brand popular
6. Profit Levels – demand as inelastic the price cuts and elastic for price rise
7. Extent of barriers to entry – hard because of its huge capitalization
Monopoly – offers product needed by many people for example is Maynilad and Casureco
1. Number of firms in the industry – Only one seller
2. Nature of the product produced – Distributed by one player
3. Degree of Power each firm has – huge opportunity of gain
4. Degree to which the firm can influence price – significant influence on prices as they are the only one
producer in the market.
5. Non-price competition or advertisement – Do not need to advertise themselves
6. Profit Levels – Very high
7. Extent of barriers to entry – It is very difficult to enter the monopolistic industry.