Managerial Economics and Strategy, 2/e

Summary

From all technically efficient production processes, a cost-minimizing firm chooses the one that is economically efficient. The economically efficient production process is the technically efficient process for which the cost of producing a given quantity of output is lowest.

1. The Nature of Costs. In making decisions about production, managers need to take into account the opportunity cost of an input, which is the value of the input’s best alternative use. For example, if the manager is the owner of the company and does not receive a salary, the amount that the owner could have earned elsewhere—the foregone earnings—is the opportunity cost of the manager’s time and is relevant in deciding whether the firm should produce or not. A durable ...