profit the difference between sales revenue and production cost cost of something is what you give up to get it AVC and ATC firm can increase production without changing long run ATC

the difference between sales revenue and production cost

total revenue change in Q/change in L input where quantity cannot be changed in the short run (pizza ovens) total revenue - explicit costs the amount a firm receives for the sale of its output

the amount a firm receives for the sale of its output

total cost market value of the inputs a firm uses in production at low levels of output input costs that require an outlay of money by the firm the difference between sales revenue and production cost

market value of the inputs a firm uses in production

TC = long run ATC rises as quantity increases ATC x Q OR explicit costs + implicit costs total revenue - explicit costs P x Q

ATC x Q OR explicit costs + implicit costs

explicit costs do not vary with the quantity of output produced the slope of the production function (rise over run) ATC x Q OR explicit costs + implicit costs input costs that require an outlay of money by the firm

input costs that require an outlay of money by the firm

implicit costs FC/Q ATC is falling input costs that do not require an outlay of money by the firm input costs that require an outlay of money by the firm

input costs that do not require an outlay of money by the firm

examples of explicit costs wages, raw materials, rent, interest paid total revenue - total costs (explicit and implicit) slopes upward extra production of hiring one more worker

wages, raw materials, rent, interest paid

What are the tools used to evaluate managers' performance, particularly for investment centers? Net Present Value and Internal Rate of Return Cost-Benefit Analysis and Break-Even Analysis Balanced Scorecard and Economic Value Added Return on Investment (ROI) and Residual Income

Return on Investment (ROI) and Residual Income

What does EBIT stand for in financial terminology? Earnings Before Income and Taxes Earnings Before Interest and Taxes Earnings Before Investment and Taxes Earnings Before Interest and Tariffs

Earnings Before Interest and Taxes

What is the formula for calculating Return on Investment (ROI)? Net Operating Income / Average Operating Assets Net Income / Total Assets Gross Profit / Net Sales Operating Income / Total Sales

Net Operating Income / Average Operating Assets

In the context of financial performance, why is a higher net operating income considered better? It suggests lower operational efficiency It reflects higher operational costs It shows increased liabilities It indicates higher profitability

It indicates higher profitability

Why is a lower average operating asset value considered better in financial analysis? It reflects increased asset acquisition It shows reduced asset turnover It indicates efficient asset utilization It suggests higher asset depreciation

It indicates efficient asset utilization

What is the goal of increasing ROI in terms of operating assets and net operating income? To earn more profit per dollar invested To decrease the company's market share To reduce the company's equity To increase the company's liabilities

To earn more profit per dollar invested

In the ROI formula, what should be done with plant and equipment that are not being used? Do not count them in the ROI formula Allocate them to a separate cost center Depreciate them over a longer period Include them as part of the operating assets

Do not count them in the ROI formula

What is relevant information in decision-making? Expected future data that differs among alternatives Historical data that cannot be changed Costs that do not differ between alternatives Information that is the same across all options

Expected future data that differs among alternatives

What constitutes irrelevant information in decision-making? Incremental revenue from a decision Expected future data that differs among alternatives Additional costs incurred in the future Costs that do not differ between alternatives

Costs that do not differ between alternatives

What is incremental revenue? Additional revenue by selecting one alternative over another Total revenue from all business activities Revenue that remains constant regardless of decisions Revenue from past sales

Additional revenue by selecting one alternative over another

What is incremental cost? Fixed costs that remain unchanged Total cost of production Cost of goods sold Additional cost incurred by choosing one option over another

Additional cost incurred by choosing one option over another

How is incremental profit calculated? Incremental Revenue - Incremental Cost Gross Profit - Operating Expenses Total Revenue - Total Cost Fixed Costs - Variable Costs

Incremental Revenue - Incremental Cost

What are incremental benefits? Increase in revenue and decrease in costs Benefits from past investments Benefits that do not change with decisions Total benefits from all operations

Increase in revenue and decrease in costs

What are short-term special decisions? Decisions involving pricing, special sales orders, and outsourcing Routine operational decisions Decisions that do not affect operations Long-term strategic planning decisions

Decisions involving pricing, special sales orders, and outsourcing

What characterizes a price-taker in pricing strategy? Emphasis on cost-plus pricing Product is unique with less competition Product lacks uniqueness and faces heavy competition Ability to set market prices

Product lacks uniqueness and faces heavy competition

What characterizes a price setter in pricing strategy? Emphasis on target costing Product is more unique with less competition Product lacks uniqueness and faces heavy competition Inability to influence market prices

Product is more unique with less competition

What is target costing? Total cost plus desired profit Price set by competitors Market price minus desired profit Cost of production plus markup

Market price minus desired profit

Managers use cost-volume-profit analysis to make predictions such as how many units must we sell to break even, what sales volume is needed to earn a target income, and how much will income change if we buy a new machine to reduce labor costs. These predictions help in understanding _____? the effect of marketing strategies the role of employee satisfaction the impact of cost changes on profit the influence of external economic factors

the impact of cost changes on profit

Managerial Economics

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Managerial Economics

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