BUSINESS ECONOMICS

K.MATHANKUMAR,

Assistant Professor,

PG and Research Department of Commerce,

C.P.A College,

Bodinayakanur.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

BUSINESS ECONOMICS

• Business Economics is the study of economic theories, logic and tools or analysis that are used in the process of decision making.
• Managerial economics means the economic theories and analytical tools that are widely applied to decision making.
• Elements of Business Economics
• Demand Supply Cost Market Price Capital budgeting Promotion sales Product

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Microeconomics &Macro economics

• Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as consumer behavior, individual labor markets, and the theory of firms.
• Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as aggregate demand, national output and inflation.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Microeconomics &Macro economics

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Profit Maximization

• Profit means “ the excess of income over all expenses”.
• Profit maximization assumption has a grater productive power.
• Profit Maximizing Conditions
• Total Profit= Total Revenue- Total Cost
• Conditions:
• Marginal revenue must be equal to marginal cost.
• Decreasing marginal revenue and rising marginal cost.

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Wealth Maximization

• In business economics the primary objective of management is assumed to be maximization of the firm’s wealth.
• Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease the quantity demanded, and vice versa.
• Demand analysis is the process of understanding the customer demand for a product or service in a target market. ... Companies use demand analysis techniques to determine if they can successfully enter a market and generate expected profits to expand their business operations

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Market demand

• Market demand is the sum of the individual demand for a product from buyers in the market. If more buyers enter the market and they have the ability to pay for items on sale, then market demand at each price level will rise.
• Cardinal utility analysis is the oldest theory of demand which provides an explanation of consumer's demand for a product and derives the law of demand which establishes an inverse relationship between price and quantity demanded of a product. It was Alfred Marshall who first discussed the role played by the theory of utility in the theory of value. In Marshall's theory, the concept of utility is cardinal. The price that a consumer is willing to pay for a good is an indication of the utility of that good to the consumer.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Cardinal V/S Ordinal

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Price elasticity of demand

• Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product in relation to its price change. Expressed mathematically, it is: Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price.
• In economics, a demand schedule is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Cross elasticity of demand 

• The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes. ... Alternatively, the cross elasticity of demand for complementary goods is negative.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

UTILITY ANALYSIS:

• A subset of consumer demand theory that analysis consumer behavior and market demand using total utility and marginal utility. The key principle of utility analysis is the law of diminishing marginal utility, which offers an explanation for the law of demand and the negative slope of the demand curve.
• Marginal utility quantifies the added satisfaction that a consumer garners from consuming additional units of goods or services. The concept of marginal utility is used by economists to determine how much of an item consumers are willing to purchase

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Marginal utility theory

• Marginal utility theory examines the increase in satisfaction consumers gain from consuming an extra unit of a good. Utility is an idea that people get a certain level of satisfaction/happiness/utility from consuming goods and service. Marginal utility is the benefit of consuming an extra unit.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Perfect Competition

• Pure or perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their product). Market share has no influence on prices.
• Features
• There are many buyers and sellers in the market.
• Each company makes a similar product.
• Buyers and sellers have access to perfect information about price.
• There are no transaction costs.
• There are no barriers to entry into or exit from the market.

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Perfect Monopoly

• A market in which only one firm has total control over the entire market for a product due to some sort of barrier to entry for other firms, often a patent held by the controlling firm.
• Price Discrimination
• a price discrimination in which a monopolist charges the maximum price that each buyer is willing to pay. This is also known as perfect price discrimination as it involves maximum exploitation of consumers. In this, consumers fail to enjoy any consumer surplus.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

 Monopolistic Market

• A monopolistic market is a theoretical construct that describes a market where only one company may offer products and services to the public. ... In a purely monopolistic model, the monopoly firm can restrict output, raise prices, and enjoy super-normal profits in the long run.
• Characteristics of monopolistic competition
• Product differentiation.
• Many firms.
• Freedom of Entry and Exit.
• Independent decision making.
• Some degree of market power.
• Buyers and sellers do not have perfect information (Imperfect Information)

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Oligopoly  Market

• Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms. A monopoly is one firm, duopoly is two firms and oligopoly is two or more firms

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Features�

• Interdependence: The foremost characteristic of oligopoly is interdependence of the various firms in the decision making. ...
• Advertising: ...
• Group Behavior: ...
• Competition: ...
• Barriers to Entry of Firms: ...
• Lack of Uniformity: ...
• Existence of Price Rigidity: ...
• No Unique Pattern of Pricing Behavior:

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Pricing Strategies

• Cost plus pricing
• Multiple product pricing
• Pricing on life cycle of a product
• Transfer pricing

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K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Cost-plus pricing

• Cost-plus pricing is often used by retail companies (e.g., clothing, grocery, and department stores). In these cases, there is variation in the items being sold, and different markup percentages can be applied to each product.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Multi-Product Pricing

• Multi-Product Pricing works by making small, scientific, up/down price adjustments across all the products in a portfolio. The average price of the portfolio should remain about the same – this will ensure customers don't see a change in the value-for-price offered by your brand or store.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Product life cycle

• Product life cycle stages. Every product progresses through different stages between its beginning and end on the market. ... And, the different stages of the product life cycle help you with strategic pricing. Strategic pricing is when a business decides how to price products or services based on what will attract buyers.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Product life cycle

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

 Transfer pricing 

•  Transfer pricing is the price which is paid for goods or services transferred from one unit of an organization to its other units situated in different countries (with exceptions). Transactions subject to Transfer pricing

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Marginal Costing

• Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.

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• Marginal cost includes all of the costs that vary with the level of production. For example, if a company needs to build a new factory in order to produce more goods, the cost of building the factory is a marginal cost. The amount of marginal cost varies according to the volume of the good being produced.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.

Imperfect competition�

•  Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods as opposed to the perfect competitive market scenario. ... If a seller is selling a non identical good in the market, then he can raise the prices and earn profits.

K.MATHANKUMAR, Assistant Professor, PG and Research Department of Commerce, C.P.A College, Bodinayakanur.