Econ 308
Chapter 1

• Economics: “Time” is the most scarcest Recourse
• 6 Principles that compromise Effective Management
1) Identify Goals & Constraints
2) Recognize the Nature and Importance of Profits
• Econ Profit= Total Rev- Total Op. Cost (Explicit & Implicit)
• Explicit= Cost to Run Business
• Implicit= Opportunity Cost
• The 5 Forces Framework: Organizes Complex Issues into 5
1) Entry: Ease of Entering a market
2) Power of Input Suppliers
3) Power Of Buyers
4) Industry Rivalry
5) Substitutes and Complements
3) Understand Incentives
• Paying an “Income” is not an Incentive
• Bonuses are effective
4) Understand Markets
• Three sources of Rivalry
1) Consumer-Producer Rivalry:
• Consumer wants low prices while producer wants high prices.
2) Consumer-Consumer Rivalry:
• Those who can pay the most for goods can only purchase
3) Producer-Producer Rivalry:
• Firms with best quality and lower prices earn customer
5) Recognize the Time Value Of Money
• Present value Analysis: The amount that would have to be invested today at prevailing Interest rate to generate given future Value.
• Present Value Formula: PV= FV/(1+i)^n
• Present Value Stream: (FV_t)/(1+i)^t
• Net Present Value: Future Value – Cost
• Perpetuity: (CF/i)
6) Use Marginal Analysis
• Most Important Managerial Tool
• N(Q)= B(Q) – C(Q)
• Marginal Value Curves are the Slopes of the Total Value Curves

Chapter 2
• Demand: As price goes up demand goes down; Vice-Versa
• Changes in Quantity Demand: When price is the lead to a change in Quantity

5 Factors that Effect Demand

A) Income: Effect how much consumers will buy at any price.
• Normal good: Increase in income leads to increase in Demand for a good. (Name Brand Hot Dog)
• Inferior Good: Increase in income leads to decrease in demand for a good. (Generic Brand Hot Dog)

B) Price of