guess question+notes
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/) ontribution Anal+sis: >he contri"ution of a "usiness decision refers to the difference "
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$lasticit+ o demand:
ticit$ of demand is measured as the ratio of ercentage change in the uantit$ demanded of a roduct to the ercentage change in its rice.
&rice $lasticit+ o %emand- >he rice elasticit$ is defined as a ratio ercentage or roortional change in the uantit$ demanded to the ercentage
or roortional change in rice
'ncome $lasticit+ o %emand- >he income elasticit$ is defined as a ratio ercentage or roortional change in the uantit$ demanded to the
ercentage or roortional change in income
ross $lasticit+ o %emand- >he cross elasticit$ is defined as a ratio ercentage or roortional change in the uantit$ demanded to theercentage or roortional change in rice of related roduct.
Ad(ertising "romotional $lasticit+ o %emand- >he ad*ertising elasticit$ is defined as a ratio ercentage or roortional change in the uantit$
demanded to the ercentage or roortional change in ad*ertisement and romotional e!enditure for a commodit$.
Ea I change in t$ demanded< I change in the ad*ertisement e!enditure
tors 'nluencing $lasticit+ o %emand:
Nature of commodit$
A*aila"ilit$ of su"stitutes
Num"er of uses/onsumers incomeJeight of rice and range of rice change
roortion of e!enditure
Dura"ilit$ of the commodit$
Ja"it
/omlementar$ goods>ime
;ecurrence of demand
ossi"ilit$ of ostonement
Managerial uses o "rice elasticit+ o demand
Determination of rice Bases of rice discrimination
Determination of %ages
Determination of rices of u"lic util ities
Distri"ution of "urden of ta!ation
Effect on emlo$ment mortance for the go*ernment
mortance in the international trade
efine demand forecasting. E!lain the uroses of short-term and long-term forecastingF
ol:%emand orecasting%emand orecasting:: rediction of ro"a"le demand for the uantit$ roduced for the mar&et or an estimation of future demand. >he imortance of demand foreca
usiness lanning.
oodood roduction and sales lanning reuire forecasts of the "usiness conditions and of their relationshi to demand. n fact it is to minimi7e the uncertainties of the un&no%hat these forecasts are needed. >he more realistic the forecasts more effecti*e decisions can "e ta&en for tomorro%.
E!ectations a"out the future course of the mar&et demand for a roduct.
t is "ased on the statistical data a"out ast "eha*iour and emirical relationshis of the determinants.
+eatures
1. Estimation for secified future eriod.
2. nl$ rediction, not necessaril$ an accurate uantification. . Jea*il$ "ased on historical data.
4. nfluenced "$ micro and macro factor.
&ur"ose o demand orecasting
roduction lanning
ales forecasting
/ontrol of "usiness
n*entor$ control
ro%th and long term in*estment rogrammes
ta"ilit$
Economic lanning and olic$ ma&ing
!lain la% of sul$. Descri"e the factors affecting sul$ of a commodit$.
9a% of sul$ state that #%hen rice of a commodit$ rises, sul$ also rises and %hen rice falls, sul$ also falls ro*ided other factors remain unchanged.' ther thing
g constant, t$ sulied of a commodit$ is directl$ related to the rice of a commodit$.
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ong un Full $.uilibrium
n long run, the firm %ill "e earning Cust normal rofits. f the$ ma&e suernormal rofits, ne% firms %ill "e attracted in the industr$ and old fir
e!and so as a result sul$ increase and rice fall. Due to reduction in rices firms marginal and a*erage re*enue declines and their suer normal rofit *anishes and th
condition continues till all the firms start earning normal rofit. =here 9A;9M;9M/9A/. +irms long term euili"rium can "e seen %ith the hel of "elmentioned fig.
!lain the meaning and features of monoolistic cometition.
Meaning and eatures o mono"olistic com"etition.fers to the mar&et structure characteri7ed "$ roduct differentiation of man$ monoolisticall$ cometiti*e firms in a articular l ine of roduction.
Automo"iles, Electronics
>he monoolist has, therefore, comleted hold o*er the mar&et sul$ and rice determination.
9arge no. of seller and "u$ers.
roduct differentiation.+reedom of entr$ and e!its
Juge selling cost
9ac& of erfect &no%ledge
duct dierentiation- t is a uniue feature of monoolistic cometition.roduct ualit$ and characteristics of the roduct can ha*e a %ide dimension, iml$ing real as %ell as surious or imaginar$ differences. roducts o
erent firms ha*e different mode of use and oerations etc si7e, design and st$le, strength and dura"ilit$, ualit$, comosition, "rand name, trade mar&s, ad*ertisement and
&manshi influence the minds of "u$ers.
Due to the conditions of sale and mar&eting- in this regard location, attitude, terms of sale, guarantee of ser*ices and reairs are the imortant asect of
duct differentiation.
roduct differentiation at a oint of time aims at identif$ing the roduct of the seller from the roduct of ri*als.roduct de*eloment is in ualit$ *ariation< adCusted more sensiti*el$ to the tastes and reference of consumers %hich %ould ensure their strong
onage.
e and out"ut determination under mono"olistic com"etition in t,e s,ort "eriod:
short eriod is so short that firms cannot increase their scales of roduction and ne% firms cannot enter in the roduction too. A firm can change the uantit$ of roduction
hort eriod "$ changing the *aria"le factors of roduction. A firm can increase his demand "$ increasing ad*ertisement and imro*ement the ualit$ and design. A firm
rmines the ualit$ of its roduction and the rice "$ its demand in the short eriod. A firm &ees on increasing roduction till the cost of roducing one e!tra unit is less than
re*enue recei*ed "$ selling one more unit of the roduct. =hen M;M/.
hort eriod in monoolistic cometition a firm can "e
Earning suer normal rofit. At the euili"rium le*el of outut a firm ma$ get a a"normal rofit f its a*erage re*enue e!ceeds the a*erage cost of roduction
/ondition of neither rofit or loss:=hen the firm Cust meets its a*erage total cost, it earns normal rofits.M;M
/ondition of loss in the short eriod :A firm ma$ suffer loss "ecause of the fact that a art of the +/ ma$ not "e reco*ered in the short run-n site of thesees the firm %ould decide to roduce, and reco*er onl$ A@/.(A;A/)
monoolistic cometition in short term all the firms do not roduce the same uantit$ nor do the$ charge the same rice. t$ of roduction and rice can "e different in
erent firms.
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ce and out"ut determination under mono"olistic com"etition in t,e long "eriod:
g eriod of time in %hich all the firms %or&ing in monoolistic mar&et can change their roduction "$ changing all factors of factors of roduction. Normall$ entr$ of firms
ot restricted in monoolistic cometition. f the oerating firms are earning suer normal rofit then ne% firms %ill enter the industr$. f some of the oerating firms are
ering losses the$ %ill lea*e the industr$. >herefore firms %ill "e earning onl$ normal rofit in long run.
E!lain the meaning and features of monoolistic cometition. Jo% is the rice olic$ determined under monool$ cometitionF
Monopoly: t refers to the mar&et structure in %hich there is onl$ a single roducer or sulier of a roduct and the entire mar&et sul$ is in his control. Monool$ isthesis of cometition.
Features o Mono"ol+
>here e!ists onl$ one seller "ut there are man$ "u$ers.
>he monool$ firm is the industr$.
>here are man$ entr$ "arriers such as natural, economic, technological or legal , %hich do not allo% cometitors to enter the mar&et.
+ull control o*er the rice.A monool$ firm is a #rice-ma&er.' n a monool$ mar&et , the rice is solel$ determined at the discretion of the monoolist, since he has contro
o*er the mar&et sul$.
ossi"ilit$ of rice discrimination
>here are no closel$ cometit i*e su"stitutes for the roduct of the monoolist . o the "u$ers ha*e no alternati*e or choice. >he$ ha*e to either"u$ the roduct from the monoolist or go %ithout it.
Monool$ is a comlete negation of cometition.
ince a monoolist has a comlete control o*er the mar&et sul$ in the a"sence of a close or remote su"stitute for his roduct, he can fi! the
rice as %ell as uantit$ of outut to "e sold in the mar&et. >hough a monoolist is a rice-ma&er, he has no unlimited o%er to charge a high rice for his roduct in the
mar&et.es o Mono"ol+
ure and imerfect monool$
9egal, natural, technological and Coint monoolies
imle and discriminating monool$ri*ate and u"lic monool$
e and out"ut determination under mono"ol+ com"etition in t,e s,ort "eriod:
hort eriod increase or decrease the use of *aria"le means of roduction to increase or decrease the roduction. f monoolist needs to roduce more then he can use more
rers, increase the t$ of fi!ed materials and fuel, "ut cannot change the uantit$ of fi!ed factors in short eriod.A"normal rofit : n short run monool$ euili"rium is at E %here the M/ cur*e cuts the M; cur*e from "elo%. >he monool$ sells outut a
rice. >he , "eing a"o*e A/, the monool$ earns A rofit er unit of outut. >hus rofit /AB
Normal rofit: >he short euili"rium of the monool$ is sho%n %hen he earns onl$ normal rofit .(A>/A;)
Minimum loss: f a monool$ faces a *er$ lo% demand or his roduct and his cost condition (A>/A;) t %ill not ma&ing rofit "ut incur losses
rt Run Monopoly Equilibrium: Try to maximized profit or minimized losses
ong ;un Monool$ Euili"rium:
n long d , firm increase his lant si7e or use his e!isting lant to ma!imi7e rofit.
n a"sence of cometition, the$ need not to roduce at otimum le*el "ut need to reach minimum 9A/ %here rofit is ma!imi7ed. At this euili"rium oint firm could "e
arning suer rofit or normal rofit, "ut in an$ condition could not "e suffering a loss. Normall$ firm is earning normal rofit. >o ma&e suer rofit in long run as entr$ of
utside firms is "loc&ed.
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&rice %iscrimination: t is a ractice of changing different rices from different customers for the same good or ser*ices. (1) B$ charging different rices for the same
roduct (2) "$ not setting rices of different *arieties of roducts or different roducts in relation to their cost differences.Forms o "rice discrimination:
ersonal discrimination
Age discrimination
e! discrimination
9ocation or territorial discrimination
i7e discrimination
ualit$ *ariation discrimination
ecial ser*ice or comforts
se and time discrimination
Nature of commodit$ discrimination
t degree "rice discrimination: nder this, the$ charges different rices to different "u$ers for each different unit of the same roduct. >he rice charged for each unit, inh case, in accordance %ith the marginal utilit$ the "u$er estimates and thus at %hat ma!imum rice he is %illing to a$ for it. >he entire consumers surlus of the "u$er is
*erted into re*enue and rofits.
ond degree "rice discrimination:nder this, the monoolist sells "loc&s of outut at different rices. Jere, the ossi"le ma!imum rice is charged for some gi*en "loc& o
ut urchased "$ the "u$er and then additional "loc&s are sold at successi*el$ lo%er rices. And the units in a articular "loc& %ill "e uniforml$ riced.rd degree "rice discrimination: under thisthe firm di*ides its total outut into man$ su"mar&ets and sets different rices for its roduct in each mar&et segment in relation
e demand elasticit$s.
Define oligool$ mar&et structure. Also e!lain *arious features and ricing models of oligool$ mar&et.
*ligo"ol+:t refers to the mar&et structure comrised "$ a fe% roducers or suliers.(cement, steel, etrol,chemicals,gas)Either homogeneous or differentiated roducts.
Jigh degree of interdeendence regarding olicies in fi!ing rice and determining outut.
Al%a$s the fear of retaliation "$ ri*als.
Ad*ertising 3 selling costs ha*e strategic imortance.
/ometition is of uniue t$e.trong restrictions on entr$ or e!ist.
Jigh cross elasticit$ and merger 3 ta&eo*er
atent right 3 control o*er certain ra% material
Juge caital in*estment
merfect dissemination of informatione determination:
Due to interdeendence, oligoolistic firm cannot &ee its rice and outut constant.
=hen firm changes its rice, its ri*al firms %ill ha*e to react, %hich %ould affect the demand of the former firm.>herefore, firm cannot ha*e a
nite demand cur*e. t &ees shifting as the ri*als change their rices in reaction to the rices changes made "$ it.
dels to determine rice G outut:Due indefinite demand cur*e, the rice and outut cannot "e ascertained "$ economic anal$sis.
rice is "ased on num"ers of models, deending on the "eha*ior attern of the mem"ers of the grou areP..
;i*als ma$ decide to cooerate
+ight each other to increase their mar&et share
Based on *arieties of agreements.Non collusi*e model of s%ee7$ (&in&ed demand cur*e)
/ollusi*e model-/artels, rice leadershi, mar&et share.
go"ol+: &in&ed demand cur*e or A@/ is made of t%o segments
;elati*el$ elastic demand cur*e;elati*el$ inelastic demand cur*e
re is a &in& at oint Q on DD. >hus DQ is elastic segment and QD is inelastic segment
>he /ur*e ha*e more elastic demand a"o*e the &in& oint and 9ess elastic demand "elo%.
Before the &in& oint, the D/ is flatter, after the &in& it "ecomes steeer
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nder this, once a general rice le*el is reached %hether "$ collusion, rice leadershi or some formal agreement, it remain unchanged o*er
od of timet can "e seen %hen M/ cur*e can fluctuate " act).artel: t is agreement among different firms to regulate the rices and outut of the grou. +irms sell such outut at agreed rice fi!ed "$tel "oard. But it is not "e ossi"le on ermanentl$ "ases of the different "eha*ior and oinion. >he E/ is an international cartel in the
rld etroleum mar&et.Secret &rice oncessions: Ma$ offer secret rice concessions for selected "u$er instead of ha*ing an oen rice cut.#on-"rice om"etition: E!cet rice cometition "$ cometing in sales romotion efforts, ad*ertising, and roduct imro*ement.
E!lain the la% of returns to factor and la% of *aria"le roortions %ith suita"le e!amles and grah. Jo% it is differ from return to scale
ol: a! o ?ariable &ro"ortiont is assumed that onl$ one factor of roduction is *aria"le %hile other factors are fi!ed.As a roducer goes on increasing the t$ of *aria"le inut, %hich is com"ined %ith other fi!ed factors, then in the
eginning the marginal roducti*it$ of that inut increase at increasing rate, at constant and at last M increasing "$ decreasing rate.Assum"tions:
ne of the factors is *aria"le %hile all other factor is fi!ed.All units of *aria"le factor are homogeneous.
roortion of the factors can "e changed.
>echnolog$ 3methods of roduction are constant.
hort eriod oeration.
9and 9a"our > A M
1 1 20 20 20
1 2 50 25 01 O0 0 40
1 4 120 0 0
1 5 150 0 0
1 6 1K5 2O.1 25
1 K 1O0 2K.1 15
1 L 200 25 10
1 O 200 22.1 0
1 10 1OK 1O.K -
&roduct ur(es
eturn to Scale
9ong run concet.
n order to increase the roducti*it$, all factor of roduction are raised simultaneousl$ in a same roortion.
utut resulting on account of a roortional increase in the %hole set of inuts. B$ increasing all factors, the outut ma$ rise initiall$ at a more raid rate than the rate of increase in inuts, then outut ma$ increase in the same
roortion of inut and ultimatel$, outut increase less roortionatel$.
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9Q I A I
192Q - 10 -
294Q 100I 0 200I
96Q 50I 60 100I
49LQ I O0 50I
5910Q 25I 100 11.11I
6912Q 20I 110 10I
K914Q 16I 120 OI
L916Q 14I 125 4I
Assum"tions:
>echnological ad*ancement. All units of factors are homogenous
;eturns are measured in h$sical terms.
/auses for increasing return:
ncreased efficienc$ of la"our 3 caital
se of sohisticated machiner$, "etter technolog$ mro*ement in large scale oeration
/auses for constant return:
i*en a constant result 3 factors are erfectl$ su"stituta"le. All factors are infinitel$ di*isi"le.
ul$ of all factors is erfectl$ elastic at the gi*en rice/auses for diminishing return
All factor inut increase roortionatel$R organi7ation 3 management factor cannot "e increased in eual roortion.
Business ris&
roduction increase "e$ond a limit.
ncreasing difficulties 3 coordination of managing a "ig firm. merfect su"stituta"ilit$ of factors
%eineinflation. E!lain the stages and t$es of inflation.
'nlation:t is a sustained rise in rice le*el o*er a eriod of time. t can "e measured in terms of ercentage increase in the rice inde! as a rate ercent er unit of time
a month or a $ear.ation is state %ith high rices, %hich causes decline in the urchasing o%er or the *alue of mone$, raid increase in the general rice le*el. rices &ee on rising due to
ess sul$ of mone$ and lo%er r outut of transfera"le goods.
tures:
Associated %ith a sustained rise in rices.
rice rise is ersistent and irre*ersi"le immediatel$.
t$ of mone$ is increasing "ut the roduction is not increased accordingl$.
;eal *alue of mone$ sho%s a falling trend
ges o inlation:
re-full emlo$ment stage
+ull emlo$ment stage
ost full emlo$ment
es o inlation:
nflation on the "asis of rice
eing inflation
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=al&ing inflation
;unning inflation
alloing or h$er inflation.
nflation on the "asis of go*t reaction
en inflation: =hen rices rise, %ithout an$ interrution of go*t. nder this free mar&et mechanism is ermitted to fulfill its historic function, short sul$
oods and distri"ute them according to consumer a"ilit$ to a$.
;eressed
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Natural calamities
Deendence on imorts
asures to control inlation:
Monetar$ olic$
+iscal olic$
/ontrol o*er in*estment
rice control and rationing
ncreased roduction
/omulsor$ sa*ing
E!lain the concet of "usiness c$cle and its *arious hases.A "usiness c$cle refers to regular fluctuations in economic acti*ities in the econom$ as a %hole. t signifies %a*eli&e fluctuations in aggregate economic acti*it$
icularl$ in national income, emlo$ment and outut. A "usiness c$cle is a eriod of u and do%n mo*ement in aggregate measure of current economic outut and income.
tures:
A "usiness c$cle is a %a*eli&e mo*ement of economics acti*ities.
Business c$cle are reetiti*e and rh$thmic
ea& and trough of a "usiness c$cle are not s$mmetricalt is an econom$ %ide henomenon and self reinforcing
Business differ in time, rices and roduction generall$ rise or fall together
Business c$cle are more mar&ed in caital goods industries than consumer goods industries.
ses o business c+cle:
&ros"erit+: >here is full emlo$ment in the econom$ reresenting around sta"ilit$ of outut, %ages, rices, income etc. All the factors of roduction are
$ emlo$ed. >here is no in*oluntar$ unemlo$ment. >here is a high le*el of outut, trade emlo$ment, income and rofits are uite high. Business fai lures are *er$ fe%.
s there is a feeling of otimism in the %hole econom$.
ecession: s a turn from "oom to deression. During this d, "usinessmen lose their confidence and failure of some "usiness houses discourages fresh
stments. A recession, once starts, tends to "uild uon itself much as forest fire, once under %a$ tends to create its o%n draft and gi*e internal imetus to its destructi*e
t$.
%e"ression: means a state of affairs in %hich real income consumed or *olume of roduction er head and the rate of emlo$ment are falling or are
normal in the sense that there are idle resources and unused caacit$, eseciall$ unused la"or.eco(er+:After lo%est oint is reached, the economic situation "egins to imro*e as a result of monetar$ and fiscal measure. ;eco*er$ first aears in the
tal goods industries, then an increase in in*estment, income and emlo$ment. ncreased income %ith the eole ushes u the demand for goods and ser*ices.
=hat are the causes of "usiness c$clesF E!lain the measures ha*e "een suggested to control "usiness c$cle.
@arious causes that lead to "usiness c$cle are:
E!ansion and contraction of loans "$ "an&s
/hange in the *olume of in*estment
nder consumtion or e!cessi*e sa*ing
9ac& of adCustment "
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+iscal olic$ measures
ther measures(direct control "$ the go*t)
E!lain meaning 3 methods of measuring N. =h$ measurement of N is imortant for a countr$F
#'is the total mar&et *alue of all final goods and ser*ices roduced %ith in domestic territor$ including net factor income a"road during an accounting $ear. t also refers to
aggregate of factor income earned "$ the normal residents of a nation during a gi*en eriod.
ous concet of N includes: Dm, Dfc, NDfc, NDm, ersonal income ri*ate income, ersonal disosa"le income and er caita income.
,ods o measurement o #'
@alue added method(roduction method)ncome method E!enditure method
ross *alue added in rimar$ sector
ross *alue added in secondar$ sector
ross *alue added in tertiar$ sector
(-)De
(-)Net indirect ta!es() N+A
N
/omensation of emlo$ees
erating surlus
Mi!ed income
Domestic income(NDfc)N+A
N
ersonal final consumtion e!enditure
ross domestic caital formation
o*t final consumtion e!enditure
Net e!ortsDm
(-) De
(-)Net indirect ta!es
() N+AN
ortance of national income: national income is a most imortant inde! of the o*erall economics situation of a countr$.
conomic olic$: National income figures are an imortant tool of macro-economic anal$sis and olic$, national income estimates are the most comrehensi*e measures of
regate economic acti*it$ in an econom$. t is through such estimates that %e &no% the aggregate $ield of the econom$ and la$ do%n future economic olic$ for
eloment.
Econom$s structure: National income statistics ena"le us to ha*e a correct idea a"out the structure of the econom$. t ena"les us to &no%
ati*e imortance of the *arious sectors of the econom$ and their contri"ution to%ards national income. +rom these studies %e learn ome is roduced and ho% it is distri"uted, ho% much is sent, sol*ed or ta!ed.
Economic lanning: National income statistics are the most imortant tools for long-term and short- term economic lanning. A countr$ casi"l$ frame a lan %ithout ha*ing a rior &no%ledge of the trends in national income. >he lanning /ommission in ndia also &et in *ie%
ional income. >he national income estimate "efore formulating the fi*e $ear lans.
nflationar$ and deflationar$ gas: National income and national roduct figures ena"le us to ha*e an idea of the inflationar$ and deflatios. +or accurate and timel$ anti-inflationar$ and deflationar$ olicies, %e need regular estimates of national income.
National e!enditure: National income studies sho% as to ho% national e!enditure is di*idend "et%een consumtion e!enditure
estment e!enditure. t ena"les us to ro*ide for reasona"le dereciation to maintain the caital stoc& of a communit$. >oo li"eral allo%
dereciation ma$ ro*e harmful as it ma$ unnecessaril$ lead to a reduction in consumtion.
Distri"ution of grants-in aid: National income estimates hel a fair distri"ution of grants-in-aid "$ the federal go*ernments to the
*ernments and other constituent units.
tandard of li*ing: National income studies hel us to comare the standards of li*ing of eole in different countries and of eole li*insame countr$ at different times.
nternational shere: National ncome studies are imortant e*en in the international shere as these estimates not onl$ hel us to fi!den of international a$ments euita"l$ among different nations "ut also the$ ena"le us to determine the su"scritions of different countri
ernational organi7ations li&e .N.., .M.+., .B.;.D., etc.
Budgetar$ olicies: Modern go*ernments tr$ to reare their "udgets %ithin the frame%or& of national income data and tr$ to formulate
lical olicies according to the facts re*ealed "$ the nation income estimates. E*en the ta!ation and "orro%ing olicies are so framed a
oid fluctuations in national income.
u"lic sector: National income figures ena"le us to &no% the relati*e roles of u"lic and ri*ate sectors in the econom$. f most of
i*ities are erformed "$ the state, %e can easil$ conclude that u"lic sector is la$ing a dominant role.
Defence and de*eloment: National income estimates hel us to di*ide the national roduct "et%een defense and de*eloment ur
m such figures, %e can easil$ &no% ho% much can "e sread for %ar "$ the ci*ilian oulation.
According to Samuelson7s- @B+ means o statistics o #' !e can c,art t,e mo(ement o a countr+ rom de"ression to
"ros"erit+6 its stead+ long term rate o economic gro!t, and de(elo"ment and inall+ its material standard o li(ing in
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com"arison !it, ot,er nations'
=hat do $ou understand "$ t$es and cost outut relationshiF E!lain short run an long run cost outut relationshi.
osts:A roducer reuires *arious factors of roduction or inuts for roducing a commodit$.Je a$s them in the form of mone$(rent, %ages etc)
Mone$ incurred "$ a firm in the roduction of a commodit$ is its cost.
n economics mone$ e! alone do not constitute cost "ut some other factor also include in cost(cost "ear "$ o%ner)
ts Function: t is mathematical e!ression of functional relationshi "et%een the costs and out-ut le*el %ith determinants.
si7e of lantutut le*el
rices of inuts
tate of technolog$ (caital outut ratio)
Managerial 3 administrati*e efficienc$
es o osts
;eal cost: a$ment made to the factor of roduction to comensate for his utilit$ of rendering ser*ices including trou"les, ains and discomfort).
ortunit$ cost: +orgone *alue from the use or alication of a gi*en resource from its ne!t "est alication
+uture cost: "ased on forecasts, in*ol*e araisal of caital e!enditure decision on ne% roCect.
Direct cost: are rime cost, ha*ing a direct relationshi %ith a unit of oerationndirect cost: indirectl$ incurred in roduction rocess.
ncremental cost: Additional cost associate due to change in method or techniue.
un& cost: =hich is made once and for all, cannot altered, increased or decreased, "$ *ar$ing the rate of outut, nor can "e reco*ered.
Jistorical cost: cost incurred in ast on the acuisition of roducti*e assets..;elacement cost: utla$ that has to "e made for relacing an old assets.
ocial cost: /ost "ear "$ the societ$.(cost of resources for %hich firm is not comelled to a$ a rice)
E!licit costs: Actuall$ incurred e!enses to "u$ or hire the roducti*e resources, it needs in the roduction rocess.
mlicit costs: Deemed e!enses or costs arise %hen the firm or o%ner sulies certain factors o%ned "$ himself.
Accounting costs: nclude e!licit costs onl$.
Economic costs: nclude "oth e!licit 3 imlicit costs.+i!ed costs: /osts remaining unchanged, irresecti*e of the le*el of outut.
@aria"le costs: /ost *ar$ing %ith outut *ariation.
rginal osts: >he additional costs relating to each successi*e unit-%ise increment in total outut. t is measured on the ratio of change in total cost to one unit change in totalut. $m"olicall$, thus, M/ %here, D denote change in outut assumed to change "$ 1 unit onl$.
ts Function: t is mathematical e!ression of functional relationshi "et%een the costs and out-ut le*el %ith determinants.
si7e of lant
utut le*elrices of inuts
tate of technolog$ (caital outut ratio)
Managerial 3 administrati*e efficienc$
ost- out"ut relations,i":/ost outut relationshi hels in determining otimum le*el of roduction.
S,ort "eriod: hort run is the eriod during %hich fi!ed assets li&e land, "uilding lant etc remain unchanged) n this eriod roduction can "e increased %ithin the lim
a*aila"le roduction caacit$ "$ increasing the t$ of *aria"le factors of roduction.
S,ort-run A(erage cost SA< ur(e
shaed indicating declining A/ in the "eginning, then remaining constant for a %hile and then rising.
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1< AF; 5F#o) o units "roduced
>here is in*erse relationshi "here is an in*erse relationshi "/ and A@/, ta&e shae. > intersects A>/ and A@/ cur*e at 1 and 2 oints resecti*el$. >hese oints are the minimum
oints of A>/ and A@/ cur*es
ong "eriod: >he eriod, in %hich a firm can increase its roduction caacit$, in %hich the in*estment in land, "uilding etc can "e changed according to the need of
"usiness. n long run all the cost are *aria"le and no cost is fi!ed. Ma!imum adCustment is ossi"le. As all the costs are *aria"le there is no use of stud$ing A+/ and
A@/. nl$ the stud$ of A>/ is rele*ant.
ong-un A(erage osts ur(e:t relates to the cost-outut relation in the long-run. t is a flatter -shaed cur*e.
Ma$ not touch all A/ cur*es at their mini oint
t refers to the lo%est oint on the long-run a*erage cost cur*e, iml$ing otimum use of factor-inut and minimum a*erage cost .
%eri(ation- >he long run a*erage cost cur*e is the en*eloe of the *arious short a*erage cost cur*es. t is dra%n as tangent to the A/s as deicted in "elo% fig:
5angent cur(e: B$ Coining the *arious lant cur*es relating to different oerational short run hases, the 9A/ cur*e is dra%n as a tangent cur*e.
$n(elo"e cur(e: t is the en*eloe of a grou of short run a*erage cost cur*es aroriate to different le*els of outut.
&lanning cur(e: 9A/ cur*e is regarded as the long run lanning de*ice, as it denotes the least unit cost of roducing each ossi"le le*el outut
and the si7e of the lant in relation to the 9A/ cur*e. A rational entrereneur %ould select the otimum scale of lant.
Mini cost combinations: >he cost le*els "e resented "$ the 9A/ cur*e for different le*els of outut reflect minimum cost com"inations of
resource inuts to "e adoted "$ the firm at each long run le*el of outut.
Flatter - s,a"ed: >he 9A/ is less shaed or rather dish- shaed. >his means that in the "eginning it graduall$ sloes do%n%ards then after
reaching a certain oint, it graduall$ "egins to sloe u%ards.
Modern t,eor+ o A
9A/ and 9M/ are 9- shaed, not - shaed. /onsider the *ital role of technological rogress as a cost minimi7ing and outut ma!imi7ing function.
9earning "$ doing-(De*eloment of s&ill, shortcuts, machine ualit$ control etc.).
E!lain the different techniue of demand forecasting.
rediction of ro"a"le demand for the uantit$ roduced for the mar&et or an estimation of future demand.mand Forecasting 5ec,ni.ues:
*"inion "olls and market researc,
$8"ert o"inion
Sur(e+s
5rend Anal+sis
&rojection 5ec,ni.ues
$conometric Models
nion olls G inion olls are conducted on *arious issues. >he issues could "e olitical, economic, roduct related, mar&et related etc.
uch olls are useful in detecting future trends and changes in trends %hich uantitati*e techniues might not "e a"le to cature.
Mar&et research uses the techniue e!tensi*el$ to gather information on consumers "eha*ior in the mar&etlace %ith resect to a secific roduct
roduct categor$.
ert inion in*ol*es see&ing the oinion of e!erts on a su"Cect matter.
+orecasts are generated "$ a grou of e!ert e!ecuti*es.
sumer ur*e$s:
t in*ol*es gathering of information a"out consumer "eha*ior from a samle of consumers %hich is anal$7ed and then further roCected onto the oulation.
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ur*e$s are conducted to assess consumers ercetion of *arious asects, such as ne% *ariations in roducts, *ariations in rices of the roduct
related roducts, ne% *ariations in ser*ices ro*ided etc.
>he dra%"ac& of this method is that the consumer has to resond to h$othetical situations. >he information collected through uestionnaire,
onal o"ser*ation and ersonal inter*ie%. Managerial economist can construct imortant demand relationshi, such as- rice demand, income and cross demand.
&et e!eriments:
eller of a roduct introduces *ariations and tries it out in a reresentati*e mar&et.
>he seller gathers information on the "eha*ior of the consumers in this reresentati*e mar&et.
>his is a high cost techniue.
Ad*antage of mar&et e!eriments are that the$ can "e conducted on a large scale to ensure *alidit$ of results and consumers are not a%are that the$ are a art
!eriments.
sumer /linics:
/onsumers are as&ed to act in a simulated situation, %herein the$ are gi*en a certain sum of mone$ and made to treat in "u$ing and their "eha*ior is o"ser*ed.
>hese are la"orator$ e!eriments. articiants ha*e an incenti*e to urchase the commodit$ as the$ are usuall$ allo%ed to &ee the goods
hased
ual hoing
A reresentati*e samle of consumers sho in a *irtual store simulated on the comuter screen.
B$ doing so, this method eliminates the high cost in terms of time and mone$ in*ol*ed in consumer clinics.
amle customers are as&ed to ta&e a series of tris through the simulated *irtual store.
rices, ac&aging, disla$s and romotions are changed in su"seuent tris and consumer reaction recorded.
%el",i met,odis a s$stematic, interacti*eforecastingmethod %hich relies on a anel of indeendent e!erts.>he carefull$ selected e!erts ans%er uestionnaires in t%o or more rounds. After each round, a facilitator ro*ides an anon$mous summar$ of the e!erts forecasts
m the re*ious round as %ell as the reasons the$ ro*ided for their Cudgments.
>hus, articiants are encouraged to re*ise their earlier ans%ers in light of the relies of other mem"ers of the grou.
t is "elie*ed that during this rocess the range of the ans%ers %ill decrease and the grou %ill con*erge to%ards the ScorrectS ans%er.
+inall$, the rocess is stoed after a re-defined sto criterion (e.g. num"er of rounds, achie*ement of consensus, sta"ilit$ of results) and the
n ormedian scores of the final rounds determine the results
ection >echniues: >here are three &inds of roCection techniues.
/omound gro%th rate
@isual time series roCection
>ime series roCection using least suare method
ual 5ime Series "rojection: >his techniue lots the data and on the "asis of the same a trend is roCected through these data oints. >his method is "etter than the
ound gro%th rate as it considers data "et%een the t%o end oints.
st s.uare met,od o time series "rojection: >his method ascertains ho% the deendent *aria"le mo*es %ith time and time "ecomes the indeendent *aria"le. >his ta&es
account trend, seasonal, c$clical and random comonents. >he function could "e additi*e or multilicati*e.
http://en.wikipedia.org/wiki/Forecastinghttp://en.wikipedia.org/wiki/Meanhttp://en.wikipedia.org/wiki/Medianhttp://en.wikipedia.org/wiki/Forecastinghttp://en.wikipedia.org/wiki/Meanhttp://en.wikipedia.org/wiki/Median
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