Principles of Managerial Economics
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Economic principles that managers
should keep in mind are:
The
incremental principle:
The decision is sound if it increases
revenue more than increases cost or if it reduces cost more than reduces
revenue.
The
principle of time perspective:
A decision should consider both the
short-run and long-run effects on revenue and cost, giving appropriate weight
to the most relevant time period in each decision.
The
opportunity cost principle:
Decision-making involves careful
measurement of the sacrifices required by the various alternatives.
The discounting principle:
If a decision affects cost and revenue
at future dates, it is necessary to discount these costs and revenue to present
values before a valid comparison of alternatives is possible.
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