UNIT 8 SHORT RUN COST ANALYSIS The analysis of cost is important in the study of managerial economics. There are two types of cost analysis: Short run cost analysis & Long run cost analysis. Cost Concepts That are Relevant for Managerial Decisions. Actual Costs And Opportunity costs Actual costs are those costs, which a firm incurs while producing or acquiring a good or service like raw materials, labour, rent, etc. Opportunity cost is defined as the value of a resource in its next best use. Explicit and Implicit costs Explicit costs are those costs that involve an actual payment to other parties. implicit costs represent the value of foregone opportunities but do not involve an actual cash payment. Accounting costs and Economic costs All the types of costs incurred by a firm while doing business are called accounting costs. All the actual and implied costs incurred by a firm are called economic costs. Contr...
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UNIT 10 MARKET STRUCTURE AND Barriers to Entry BARRIERS TO ENTRY CLASSIFICATION OF MARKET STRUCTURES The term ‘market structure’ refers to the degree of competition prevailing in that particular market. The power of an individual firm to control the market price by changing its own output determines the degree of competition and this power varies inversely with the degree of competition. The higher the degree of competition, the less market power the firm has and vice-versa. Market power is generally thought to be the ability of the firm to influence price. The four characteristics used to classify market structures are: i) Number and size distribution of sellers, ii) Number and size distribution of buyers iii) Product differentiation and iv) Conditions of entry and exit Based on the above characteristics markets are traditionally classified into four basic types. These are Perfect Competition, Monopoly, Oligopoly and Monopolistic Competition Perfect ...
UNIT 13 PRICING STRATEGIES CONCENTRATION RATIOS, HERFINDAHL INDEX AND CONTESTABLE MARKETS · The degree by which an industry is dominated by a few large firms is measured by Concentration ratios. · Another method of estimating the degree of concentration in an industry is the Herfindahl index (H). The higher the Herfindahl index, the greater is the degree of concentration in the industry. · In fact, according to the theory of Contestable markets developed during the 1980s, even if an industry has a single firm (monopoly) or only a few firms (oligopoly), it would still operate as if it were perfectly competitive if entry is 282 Pricing Decisions “absolutely free” (i.e. if other firms can enter the industry and face exactly the same costs as existing firms) and if exit is “entirely costless” PRICE DISCRIMINATION Price discrimi...
Unit No 01 Scope of Managerial Economics Managerial Economics Managerial economics is concerned with the application of economic principles and methodologies to the decision-making process within the firm or organizations under the conditions of uncertainty. Definition According to MC Nair and Meriam, “Managerial economics is the use of economic modes of thought to analyze business situations. · A close relationship between management and economics has led to the development of managerial economics · Part of Micro Economics · Focus on risk, demand, production cost, pricing and market structure · Managerial economics is used by firms to improve their profitability. · It is the economics applied to problems of choices and a...