Business Economics Lecture 4 Quiz

Study Notes

CLO 1: Assess business economics applications for business decisions, capable of analyzing demand and forecasting. Demonstrate production and cost functions.
CLO 2: Explain different types of business economic applications, differentiate demand curves, and demonstrate production and cost functions.
CLO 3: Classify pricing types under various market structures. Show the marginal productivity theory and factors of production.
CLO 4: Distinguish between various market structures. Study factors of production.

Opportunity Cost Principle: Opportunity costs are measured by sacrificing goods and services involved in a decision. The opportunity cost of business funds is the lost interest income. A machine's opportunity cost is the income lost from renting it. Opportunity cost is the only relevant principle in decision making.
Incremental Principle: Economists use this principle in consumption, pricing, and distribution. In price determination, a firm maximizes profits by equating marginal costs and revenues. A business manager should expand operations if the incremental benefit exceeds incremental costs. Incremental changes in prices, products, procedures, etc. are the focus.
Discounting Principle (DP): Decisions affecting future costs and revenue require discounting to present value for proper comparison. A rupee today is worth more than a rupee tomorrow (fundamental economic concept). The formula PV = FV/(1+r)^t illustrates this, where PV is present value, FV is future value, r is the discount rate (interest rate), and t is time. Uncertainty about future receipt reduces value.
Equi-Marginal Principle (EMP): Allocates resources among alternative activities so that value added by last units is equal in all cases. Scarce resources are allocated to different uses equally distributed. For example, if each worker's output value is similar across different tasks, resources are distributed efficiently.

Decision-making process: Identifying key factors influencing business over time.
Influenced by external and internal factors.
External Factors: Comprise the business environment (outside management control), including population shifts, fashion, market opportunities, national/International markets.
Internal Factors: Within the scope/operations of a firm (under management control).
Roles of Managerial Economist:
- Business Operations (sales and profit budget, production schedule, wage/price policies, cash/capital management)
- Environmental Studies (population shifts, social behavior changes, market/customer opportunities)
- Specific Functions (sales forecasting, market research, economic analyses of competitors, pricing problems, capital projects, production programs, investment, trade relations)
- Economic Intelligence (competitor prices, tax rates, tariff, providing intelligent service)
- Public Debates (advising and providing viewpoints in response to government/society)
- Indian Context (macro forecasting, production planning, specific economies, preparing/assisting with development plans and reports, developments at national/international levels).

Focus on the primary goal of management
Produce the most accurate forecast to reduce uncertainties
Alert Management of any foreseeable issues with the forecast
Establish and keep strong contacts and data sources
Must be able to communicate effectively and succinctly
Use simple language instead of overly technical jargon when communicating with executives