MBA AMP key terms

The value of the best alternative given up when a resource is committed to one use. It is measured in forgone benefits, not in cash spent, and underpins every trade-off decision.

Money already spent that cannot be recovered regardless of what happens next. Rational decisions ignore it, yet managers often let it distort whether to continue or abandon a project.

Comparing the extra benefit of one more unit against its extra cost. Activity should expand while marginal revenue exceeds marginal cost and stop where the two are equal.

The percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the ratio exceeds one, meaning revenue falls if price rises.

The competitive setting a firm operates in, ranging from perfect competition through monopolistic competition and oligopoly to monopoly. It determines pricing power and expected long-run profit.

Conditions that make it costly or slow for new competitors to enter an industry, such as capital requirements, patents, scale economies, or regulation. High barriers protect incumbent margins.

The ability to produce a good at a lower opportunity cost than another producer. It explains why trade can benefit both parties even when one is absolutely more productive at everything.

Declining average cost per unit as output volume grows, driven by fixed-cost spreading, purchasing power, or specialization. It rewards size and can justify aggressive pricing to gain share.

The market value of all final goods and services produced within a country in a period. It is the standard headline measure of economic activity and the base for growth comparisons.

A sustained rise in the general price level, reducing the purchasing power of money. Central banks typically respond by raising interest rates, which affects borrowing costs and demand.

The recurring pattern of expansion and contraction in aggregate economic activity. Its phases shift demand, hiring, and credit conditions, so forecasts usually build in a cycle assumption.

A performance framework that tracks financial results alongside customer, internal-process, and learning-and-growth measures. It links day-to-day metrics to strategy rather than judging managers on profit alone.

A small set of measures chosen because they signal progress toward a specific objective. Good ones are quantifiable, owned by someone, and tied to a decision rather than merely reported.

A ratio of gain or profit to the capital committed to produce it, usually expressed as a percentage. It allows comparison across projects of different absolute size.

The sum of a project's expected future cash flows discounted to today at a required rate, minus the initial outlay. A positive value means the project adds value.

The rate used to convert future cash amounts into today's equivalent value. It reflects the time value of money plus the risk of the cash flows being realized.

The blended return a company must earn to satisfy its lenders and shareholders. It is the minimum hurdle rate for investment and a common choice of discount rate.

The time required for cumulative cash inflows to recover an initial investment. It is simple and intuitive but ignores cash flows after the cutoff and the time value of money.

Revenue minus variable costs for a product or unit. It shows how much each sale contributes toward covering fixed costs and then generating profit.

The sales volume or revenue level at which total revenue equals total cost, so profit is zero. It is computed by dividing fixed costs by contribution margin per unit.

An expense that does not change with the volume of output within a relevant range, such as rent or salaried staff. High fixed costs magnify the profit effect of sales swings.

The degree to which a company's cost structure is fixed rather than variable. High operating leverage means small revenue changes produce large swings in operating profit.

Recording revenue when earned and expenses when incurred, regardless of when cash moves. It gives a truer picture of performance than cash receipts and payments alone.

The rule that expenses should be recognized in the same period as the revenue they helped generate. It is why costs like depreciation and warranties are allocated over time.

The systematic allocation of the cost of a long-lived asset over the periods that benefit from its use. It is an accounting expense, not a cash outflow in the period recorded.

Current assets minus current liabilities, measuring short-term liquidity. Positive working capital suggests a firm can meet obligations due within a year from its near-term resources.

A financial statement that reports cash generated and used across operating, investing, and financing activities. It reveals liquidity and quality of earnings that the income statement can obscure.

Dividing a market into groups of buyers with similar needs or behaviors so each can be served with a tailored offer. Effective segments are measurable, reachable, and large enough to matter.

Choosing which customer segments to serve and shaping how the brand is perceived relative to rivals in the minds of those buyers. Positioning depends on a clear, defensible point of difference.

A concise statement of the benefit a product delivers, for whom, and why it beats the alternatives. It anchors messaging, pricing, and product priorities.

An attribute that lets a firm outperform rivals, such as lower cost, differentiation, or superior access to customers. It must be valuable, rare, and hard to imitate to be durable.

A structured summary of a firm's internal strengths and weaknesses alongside external opportunities and threats. Its value comes from converting the findings into specific strategic actions.

A framework assessing industry attractiveness through rivalry, buyer power, supplier power, threat of new entrants, and threat of substitutes. Strong forces in any dimension erode profit potential.

An objective stated as specific, measurable, achievable, relevant, and time-bound. The format forces clarity about what success looks like and when it will be judged.

A process in which managers and employees jointly set measurable goals and later review performance against them. It aims to align individual effort with organizational priorities.

The number of subordinates reporting directly to one manager. Wider spans flatten hierarchies and speed decisions but demand more delegation and clearer standards.

Assigning a task along with the authority to complete it, while the manager retains accountability for the outcome. Done well, it builds capability; done poorly, it creates confusion.

Adapting one's style of direction and support to the competence and commitment of the individual and the demands of the task. There is no single best style across all situations.

The capacity to recognize, understand, and regulate one's own emotions and to read and influence others' feelings. It predicts effectiveness in roles requiring collaboration and conflict handling.

The shared values, norms, and assumptions that shape how members behave when nobody is watching. Culture is transmitted through stories, rituals, hiring, and what leaders reward.

Persisting with a failing course of action because of prior investment or public commitment. It is a bias that turns sunk costs into a reason to keep spending.

The tendency to seek, interpret, and recall information that supports existing beliefs while discounting contrary evidence. It undermines analysis by making weak hypotheses look well supported.

Two variables are correlated when they move together; one causes the other only when a mechanism and controlled comparison support it. Confusing the two is a classic reasoning flaw.

The underlying frequency of an event in a population before case-specific evidence is considered. Neglecting it leads to overconfident judgments about rare events.

A claim taken as true without support in the argument itself. Identifying unstated assumptions is the core move in evaluating whether a conclusion actually follows.

An error in reasoning where a conclusion does not follow from the premises, such as attacking the person rather than the argument. Spotting fallacies sharpens critical evaluation.

A single sentence that states the central claim of an essay and previews the reasoning that supports it. Everything else in the piece should serve that claim.

A short opening section that condenses a longer document's purpose, findings, and recommendation for busy decision makers. It should stand alone and lead with the conclusion.

A communication structure that states the conclusion first, then groups supporting arguments, then evidence. It matches how senior readers want to receive analysis.