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Showing posts from February, 2021

PRICING

Pricing is the most important function of all enterprises. Since every enterprise is engaged in the production of some goods and services incurring. Some expenditure to sell in the market. It must set a price for it's product. Every manager endeavours to find the price which would best meet it's objective. On the other hand if the price is set too high the seller may not find enough customers to buy his product. On the other hand if the price is set too low the seller may not able even to recover his costs. Thus there is a need for the right place. Price denotes the exchange value of an Unit of a good expressed in terms of money. The pricing decision needs to be renewed and reformulated from time to time. Determinants of price: Determination of prices is an important function in all enterprises. Price affects profit through it's effect both on total...

COST FUNCTION

Cost which a firm incurs in the production of goods or services depend on two things a) Firm's production function b) Market's inputs supply function The cost would vary * Output level varies * Nature of production function varies or factor prices change. Putting all this together we have the following cost function C= f( Q1,E1,P1) f1,f3>0>f2 Where, C= Total Production cost Q= Total output E1= Efficiency of inputs P1= prices of inputs Factor productivities depends on the levels of technology, the quality of the work force and management. Which are influenced by education, training and health condition and sincerity and integrity of the labour and mis management which are reflected in absentism, strikes, lockouts etc. Thus through factor efficiencies many factors exercise influence on the cost of production. An increase in ...

COST CONCEPTS AND TYPES

Cost is the money spent on production and selling a product to the customer. The cost may be direct or indirect cost. The cost of a product starts from procuring the raw materials till selling the product to the customer. The cost includes 1) Manufacturing cost 2) Selling and distribution cost 3) Office and administration cost Types of cost: The kind of cost concepts to be used in particular business situation depend on the business decisions to be made. It is important to use the right kind of cost in the business situation. The following are some of the main cost concepts or cost types. They are 1) Actual costs & Opportunity costs 2) Incremental costs & Sunk costs 3) Explicit costs & Implicit costs 4) Past costs & Future cost 5) Accounting costs & Economic costs 6) Private costs & Social costs 7) Direct costs & Indirect costs 8) Controllable costs & ...

PRODUCTION

Production theory deals with input output relationship. Input output relationship can be expressed in physical terms as well as in money terms. Production theory deals with physical relationship ( ie.) technical and technological relations between inputs and outputs. (Eg) Capital labour ratios , capital output ratios etc. One of the prime objective of business firm is to achieve optimum efficiency in production and minimizing cost for a given Production. Meaning of production: In economics the term Production means process by which a commodity are transformed into a different usable commodity. Production also means transforming input into output. This kind of Production is called manufacturing. In economic sense Production process may taken a variety of forms. For eg. Transporting a commodity from one place to anot...

SUPPLY

The supply of a product means " the amount of that product which producers are able and willing to offer for sale at a given price". Supply depends on the price when there is a change in price the demand for the product by the consumer or the supply of the product by manufacturers to the market change. When the price is high, demand is less but the supply is high. Determinants of supply: The market supply of goods generally depends on many factors such as 1. Input prices 2. Technology 3. Government regulation 4. Competition 5. Substitute in production 6. Taxes 7. Producer expectation 1. Input prices: The supply curve explains how much manufactures are willing to produce at different prices. But as the production cost changes the willingness of producers to produce output at a give price changes. When the price of an input rises producers are willing to produce less at given pri...

DEMAND FORECASTING

Demand forecasting means estimation of the demand for the goods in forecast period. Demand forecasts may be attempted not only for a total market but also for market segments like domestic demand and foreign demand. Steps involved in forecasting: 1. Identify and clearly state the objective forecasting. 2. Select appropriate method for forecasting depending upon the objective different tools will be used. 3. Identify the variables affecting the demand for the product. 4. Gather the relevant data to represent the variables. 5. Determine the most probable relationship between the depended and independent variables. 6. Prepare the forecast and interpret the results. Method of demand forecasting: There are several methods of demand forecasting basically for 3 reasons a) No method is perfect and no method is useless. b) No method is best under all circumstances. c) The best method may not be available in a particular situat...

DEMAND ELASTICITY

To find out the magnitude of impact on the quantity of demand for economists use the tool of elasticity of demand. Definition: Elasticity of demand is defined as " the percentage of change in quantity demanded caused by one percent change in the demand determinant under consideration while other determinant are held constant. This can be replaced as e= percentage change in quantity of demanded of goods(q)/ percentage change in demand determinant (z). The above definition can be simplified into " the degree of responsiveness of quantity demanded to a change in the demand determinant". The formula is e = proportionate change in the quantity demanded/ proportionate change in price. Elasticity of demand means " the rate at which demand may change when price changes is known as elasticity of demand". Types of Elasticity of ...

DETERMINANTS OF DEMAND

Demand analysis is needed for three purposes a) To provide the basis of analysing market influence on the demand. b) To provide guidance for manipulating the demand. c) To provide guidance for manipulating the demand. d) To guide in production on planning through forecasting the demand. Demand Determinants are classified as 1. For all demands a) Consumer's Income b) Prices of related goods * Substitute goods prices * Complementary goods prices c) Consumer's taste& preference 2. For durable or expensive goods a) Consumer's expectations about * Future incomes * Future prices 3. For aggregate demand a) Number of consumer's b) Distribution of consumer's Demand determinants can ...

DEMAND

If there is no demand for a good there is no need to produce that good. Also if the demand for a good exceeds it's supply there may be need to expand it's production. Demand Analysis seeks to identify and analyse the factors that influence the demand. Effective demand has three crucial characteristics * Desire to have a good. * Willingness to pay for that good. * Ability to pay for that good. In the absence of these three characteristics there is no demand. Definition of Demand: " Demand indicates the quantities of product which the firm is willing and financially able to purchase at various prices holding other factors constant". " Demand is a relation showing the various amount of the commodity that buyer would be willing and able to purchases at possible alternative prices during a given period of time, all othe...

BASIC ECONOMIC CONCEPTS

Some of the principles of economics adopted in Managerial Economics are as follows 1. Incremental Principle: Incremental concept is closely related to marginal cost and marginal revenue. Marginal cost: cost incurred for producing an extra unit. Marginal revenue: change in total revenue attributable to the last unit of output. In real life business it becomes difficult to find out the cost or revenue which comes out of the additional unit produced or sold. Hence the concept of marginalism is replaced by incrementalism. Here in incrementalism the cost or revenue is attributed to the batch of units produced. Incremental Cost: Incremental cost is the change in total cost as a result of change in the level of output, investment etc. Increm...

FIRM'S TYPES

The types of firms are classified as follows 1. Individualistic Institutions 1) Sole trading 2) Partnership 3) Joint stock company a) public Ltd b) private Ltd 4) Co-operative 5) Multinational Companies 2. Government Institutions 1) Public Corporation 2) Government Company 3) Government Department Individualistic Institutions: 1. Sole trading: If a business is owned and controlled by a single person / individual then it is sole trading business. He himself enjoys the profits and bear all losses. 2. Partnership: ...

FIRM

A firm is an organisation which converts inputs into outputs and it sells. Input includes the factors of production (FOP). Such as land, labour, capital and organisation. The output of the firm consists of goods and services they produce. The firm's are also classified into categories like private sector firms, public sector firms, joint sector firms and not for profit firms. Group of firms include Universities, public libraries, hospitals, museums, churches, voluntary organisations, labour unions, professional societies etc. Firm's Objectives: The objectives of the firm includes the following 1. Profit Maximization: The traditional theory of firms objective is to maximize the amount of shortrun profits. The public and business community define profit as an accounting concept, it is the difference between total receipts and total profit. 2. Fi...