guess question+notes

8/10/2019 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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