Question

Concept: Scarcity Define scarcity. What signifies to managers that a resource used in production is becoming scarce? What impact does this have on management decisions?

Concept: Economic Profit Define economic profit. Explain how economic profit is different than accounting profit. Why is it important for economists to measure economic profit rather than just sticking to the accounting profit used in accounting and finance?

Concept: Opportunity Cost Define opportunity cost. Give an example of a personal decision you made within the past year. What explicit costs were involved? What opportunity costs were involved? Explain how you arrived at your decision. Include the role of opportunity costs in your explanation and describe criteria you used to evaluate your options.

Concept: Goals of a Firm When analyzing decisions that are made within a firm, economists typically assume that “profit maximization” is the firm’s main goal. However, a number of other goals are also possible. Choose one of the “other” possible goals and compare it to “profit maximization.” Under what circumstances might the “other” goal that you described become a major focus for the firm? If you were the CEO of a large firm, what steps might you take to ensure that departments within the firm are working together toward common goals?

Concept: Outsourcing Under what circumstances would a firm benefit from outsourcing a portion of its business operations? What are the major costs and benefits that would need to be considered when deciding to outsource? (Identify at least two costs and two benefits.)

Answer 1

SCARCITY

Scarcity refers to the basic economic problem, the gap between limited - that is scarce - resource and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible. Any resource that has a non - zero cost to consume is scarce to some degree, but what matters in practice is relative scarcity. Scarcity is also referred to as "paucity."

ECONOMIC PROFIT

Economic Profit is the difference between the business and the total explicit and implicit cost for a firm.

Economic profit is important because it is used as an indicator of how profitable company projects are and it therefore serves as a reflection of management performances.It includes the balance sheet in the calculation and encourages managers to think about assets as well as expenses in their decisions.

OPPORTUNITY COST

Opportunity costs can represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost ,business owners can use it to make educated decisions when they have multiple options before them.

GOALS OR OBJECTIVES OF FIRMS

1.)Profit Maximisations

2.)Sales Maximisations

3.)Increased Market Share

4.)Social / Environmental Concerns

5.)Profit Satisficing

6.)Co-operatives

OUTSOURCING

Outsourcing - work arrangement made by an employer who hires an outside contractor to perform work that could be done by company personnel. Outsourcing has been a frequent point of dispute for organized labour. Management favours outsourcing , or subcontracting, often to nonunion providers , because these activities can often reduce costs. Outsourcing can also reduce the number of employees in a collective bargaining unit.