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Introduction UNIT - 1
Micro Economics:
Micro means small (looks at the smaller picture of the economy) It is the study of behaviour of small economic units, such as that of an individual consumer, a seller (or a producer, or a firm), or a product. It focuses on the basic theories of supply & demand in individual markets (cars, food items, mobile phones etc) Micro economics analyses the market behaviour of individual consumers & firms, in an attempt to understand their decision making 5 processes.
Macro Economics:
Macro means large, it is the branch of economic analysis, that deals with the study of aggregates. We study the industry as a unit and not the firm. We talk about aggregate demand & aggregate supply, national income, national capital formation, employment, inflation etc.,
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Short run is a time period not enough for consumers and producers to adjust completely to any new situation. Long run is a planning horizon in which consumers and producers can adjust to any new situation
Equilibrium is a state of balance that can occur in a model. The intersection of the supply and demand curves is the point that maximises both profit and utility.
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Positive Economics:
It establishes a relationship between cause and effect, It analyses problems on the basis of facts, For example this theory might describe the probable effect of an increase in price of petroleum on the price of cars, but it would not provide any instruction on what policy should be followed.
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Normative Economics
It is concerned with questions involving value judgements; It looks at the desirability of certain aspects of the economy, say inflation as better than deflation, redistribution of wealth in the economy, etc., It is what ought to be in economic matters, as opposed to what is in positive economics.
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Demand analysis and forecasting Cost & production analysis Pricing decisions, policies and practices Profit management Capital management Linear programming & theory of Games
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Accurate estimation of demand by analysing the forces acting on demand of the product produced by the firm. Demand analysis attempts at finding out the forces determining the sales. This has two main managerial purposes:
Forecasting sales, & manipulating demand
Production analysis deals with physical terms of the product, while cost analysis deals with monetary terms. Cost analysis is concerned with cost concepts, cost-output relations, economies of scale, production function and cost control.
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The success or failure of a firm mainly depends on accurate price decisions to effectively compete in the market. The important aspects under this are:
Price determination under market conditions, Pricing methods & policies, Product-line pricing And price forecasting
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Profit Management:
Profit management, profit policies and techniques, profit planning like breakeven analysis are studied under this category.
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Capital management:
Capital management deals with planning and control of capital expenditure, cost of capital, rate of return and selection of project, etc.
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III Profits:
The maximisation of profits is the main objective of any firm and the survival of the firm depends on the profits it earns. Profit is the main indicator of firms success.
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IV. Optimisation:
Important concept used in Managerial Economics is Optimisation. This aims at optimising a given objective.
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Micro-economics applied to internal issues : Operational issues are of internal nature. Internal issues include all those problems which arise within the business organization and fall within purview and control of the management .Some of the basic internal issues are : What to produce
How to decide on new investments How to manage capital and profit How to manage inventory i.e. stock of both finished goods and raw material Most of the micro economic problems deals with most of these questions.
Macro-economics deals with external issues : The type of economic system in the country General trends in N.I., employment, prices, savings and investments Structural change in the working financial institutions viz., banks, insurance companies etc Magnitude of and trends in foreign trade
Social factors viz., value system of the society, property rights, customs and habits etc., Political environment i.e., democratic, authoritarian,
making.
Eg : SEZ in the Nandigram, Tatas small car in Singur district in West Bengal
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Core topics of ME
Demand function & Estimation Demand Elasticity Demand Forecasting Production Function and Laws Cost Analysis Pricing & Output Determination Pricing policies & Practices Profit Planning & management Project Planning Capital Budgeting Break-Even Analysis Linear Programming Game theory
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concerned industry
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analysis
Advising on prices, investment and capital budgeting policies Evaluation of capital budgeting etc.
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Demand forecasti ng
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DEMAND FORECASTING
QUALITATIVE
CONSUMER SURVEY JURY OF EXPERT OPINION
TIMESERIES METHODS
QUANTITATIVE
CAUSAL METHODS
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PRODUCTION PLANNING AND COST REVENUE DECISIONS Production Function : The production function is a technological relationship between output and various inputs used
Economic environment
General conditions
Industrial conditions
Market
INVESTMENT DECISION
Business firms invest large money in their
Defining business problem Determining objective Exploring available alternatives Assessing consequences of various alternatives
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