Managerial Economics & Economic Concepts

run at least one input is fixed (all others being variable), and the usual factor of production that is fixed is capital (the firm's buildings, machines, and other fixed assets). Because capital is fixed in the short run, all the costs associated with capital are called fixed costs. In the short run the firm can, in essence, ignore those costs: they will be incurred irrespective of how many units are produced. The costs that change in the short run are "variable costs," which rise or fall depending on how much output the firm produces.

The long run is distinguished by the fact that all factors of production become variable. There are no longer any fixed costs. Established firms may expand their productive capacity or leave the industry entirely, and new firms may enter the business.

Market Structure: Market structure refers to all features of a market that affect the behavior and performance of firms and consumers in that market. The keys factors in defining a market structure are the short run and long run objectives of buyers and sellers in the market, their beliefs about the ability of themselves and others to set prices, the technologies they employ, the amount of information available to them about the product and about each other, the degree of coordination or non-cooperation they may exhibit, the extent of entry and exit barriers, and the degree of product differentiation.

Decision Making: Strategic management is concerned with the fundamental direction of the organization's activity, i.e., the businesses that the organization intends to pursue and desired levels of achievement in those lines of business. Such decisions, by their very natures, must be made at the highest policy making level of the organization. Managerial decisions are often made in light of constraints imposed by technology, resource