Managerial-Economics DN Dwivedi
Managerial-Economics DN Dwivedi
Managerial-Economics DN Dwivedi
Theory of Demand
Production theory (Theory of firm)
Pricing theory
Profit analysis and Management
Theory of Capital and investment
decisions
Macro economic applied
Macro economics issues is generally pertain to factors in
the economic environment in which the business
operates-
Type of economic system,
General trends in production, employment, income,
-prices, savings and investments
Structure & trends of working of the financial institutions
Magnitude of and trends in foreign trade
Govt’s economic policies
Social factors
Political environment-govt attitude towards business
Degree of openness of the economy
National Income Analysis
National Income concepts
Availability of substitutes
Nature of commodity- essentials, luxuries
Weight age in the total consumption –if
the commodity purchase accounts for a
very small percentage of total income
then less elastic
Time factor in adjustment of consumption
pattern
Range of use of commodity
Income elasticity of Demand
3. General or specific
Commodity or product wise, nationwide
or area wise.
4. New products vs established products
5. Type of products – consumer goods,
producer goods, durable goods, non
durable goods etc.
6. Factors specific to particular goods
SUPPLY ANALYSIS
Meaning of Supply
Meaning of Production
1. Perfect Competition
2. Imperfect Competition
a. Monopoly
b. Oligopoly
c. Monopolistic competition
Perfect Competition
Many producers
Real or perceived difference in products.
products are not identical.
Resembles perfect competition in that
there are large number of producers,
none have large market share.
Barriers to entry
PRICING POLICIES
AND
PRICING METHODS
General considerations in
formulating pricing policy
1. Objectives of the business
2. Competitive situation
3. Product and promotional policies
4. Price Sensitivity
5. Interests of Manufacturers and
middlemen
6. Influence of Non business entities on
price determination
Objectives of Pricing Policy
Cost Oriented
1. Cost- plus or Full cost pricing
2. Pricing for return or target pricing
3. Marginal cost pricing
Competition Oriented
1. Going rate pricing
2. Customary pricing
3. Sealed bid pricing
Full cost or Cost plus pricing
What is Profit ?
Profit is essentially a residual sum.
Net profit is a sum over and above the
ordinary costs including contractual outlays
Land ,labor and capital are frequently used
under contracts whereby they receive pre
determined return.
Nobody contracts to the entrepreneur the
residual sum - profits
Business is faced with a number of uncertainties:
Technical uncertainties
Cost uncertainties
Demand uncertainties
Market uncertainties
Profit is the reward to entrepreneur for combining
factors of production to meet the economic needs
of the world and successfully managing the risks
and uncertainties in the process.
Accounting Profit and
Economic Profit
In the accounting sense profit is revenue
realised during the period minus the
explicit or actual cost and expenses
incurred in producing the revenue – the
residual concept.
The economic profit also calls for
deduction of imputed costs –
Entrepreneur’s wages (which he could
earn by working for others)
Rental income from self owned land and
buildings (he would got by renting to
others)
Interest on self owned capital (which he
would earned by investing elsewhere)
Economic Profit =
Accounting profit – imputed costs
From the managerial point of view
economic profits are more important than
accounting profits as the former reflect the
true profitability of the business. A firm
incurring economic loss but making
accounting profit may have to withdraw
from business in the long run.
Functions of profit