Managerial Economics: Consulting, Forecasts, and Competition

1. A manager makes the statement that output should be
expanded so long as average revenue exceeds average cost. What does this mean,
and does this strategy make sense? How would you explain it?

2. As an economic consultant to the dominant firm in a
particular market, you have discovered that, at the current price and output,
demand for your client’s product is price inelastic. What advice regarding
pricing would you give and why?

3. Managers depend on economic forecasts in making
decisions. Recognizing that a margin of error is as important as the forecast
itself, disasters in the planning process could occur if management is over
confident in predictions and projections for the future. Provide an industry
example of this and explain how it could have been avoided.

4. Opportunity cost is associated with choosing a particular
decision that is measured by the forgone benefits of the next-best alternative.
What example would you pose to explain this? What is meant by a sunk cost?

5. Consider the concept of perfect competition. This is
where the firm faces infinitely elastic demand. How is this best explained?
Provide an example.

6. Monopolistic competition is described with the following
formula: MR=MC and P=AC. Explain this by providing an industry example.

7. Sequential competition is described as where the manager
must think ahead. What strategies do you recommend for anticipating the actions
of competitors and why?

8. An externality is described as an impact or side effect
that is caused by one economic agent and incurred by another agent or agents.
How is this best explained? What industry example do you use to demonstrate

Samuelson, W.(2012). Managerial Economics.(7th ed). John
Wiley & Sons, Inc.