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Managerial Economics Questions and Answers

Managerial Economics Questions and Answers

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Published by nisajames
Managerial economics, relevance to engineers, basic concepts, types of firms, business environment
Managerial economics, relevance to engineers, basic concepts, types of firms, business environment

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Categories:Types, Business/Law
Published by: nisajames on Aug 22, 2010
Copyright:Attribution Non-commercial


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Class Test Questions and Answers
What is Managerial Economics? What is its relevance to Engineers/Managers?Ans
: Study of economic theories, logic and methodology for solving the practicalproblems of business. It is used to analyze business problems for rational businessdecisions. It is also called as Business Economics or Economics for firms.Relevance to engineers/Managers:Engineering and Management involves a lot of strategic decision making situations.Managerial economics helps in rational decision making. The various economic conceptshelp a manger to take right decisions. The scope of managerial economics is:I.
The selection of the production or the service to be produced.II.
The choice of production methods and resource combinationsIII.
The choice of best price and quantity combinationsIV.
Promotional strategy and activities.V.
The selection of location from which to produce.
How will you arrive at a business decision? What is a business environment?Ans:
Managerial Decisions/ Decision Analysis is the Process of selecting the best out of alternative opportunities, open to the firm.To arrive at a business decision, the four main phases are:1. Determine and define the objective.2. Collection of information regarding economic, social, political and technologicalenvironment and foreseeing the necessity and occasion for decision.3. Inventing, developing and analyzing possible courses of action.4. Selecting a particular course of action from the available alternatives.
Business environment
comprises of the economic, social, political and technologicalenvironment.
What are the basic economical concepts? Briefly explain with the applications.Ans:
The basic/fundamental economic concepts are:i.
Incremental conceptii.
Discounting conceptiii.
Time perspectiveiv.
Opportunity costv.
Equimarginal concept
Incremental analysis
refers to changes in cost and revenue due to a policy change. Forexample - adding a new business, buying new inputs, processing products, etc. Change inoutput due to change in process, product or investment is considered as incrementalchange. Incremental principle states that a decision is profitable if revenue increases morethan costs; and if costs reduce more than revenues.
This concept is used while making a policy decision like adding a newbusiness, buying new inputs, processing products etc.
According to
Discounting concept
, if a decision affects costs and revenues in long-run,all those costs and revenues must be discounted to present values before validcomparison of alternatives is possible. This is essential because a rupee worth of moneyat a future date is not worth a rupee today. Money actually has time value. Discountingcan be defined as a process used to transform/reduce future money into an equivalentnumber of present money. For instance, Rs.100 invested today at 10% interest isequivalent to Rs.110 next year.
FV = PV*(1+r) t
Where, FV is the future value (time at some future time), PV is the present value, r is thediscount (interest) rate, and t is the time between the future value and present value
This concept is used in investment decisions, loan transactions, selection of projects etc.According Time perspective, a manger/decision maker should give due emphasis, both toShort-term and Long-term impact of his decisions, giving apt significance to the differenttime periods before reaching any decision.
: Pricing decisions.
According to
Opportunity cost principle
, a firm can hire a factor of production if andonly if that factor earns a reward in that occupation/job equal or greater than itsopportunity cost.
It is also defined as the cost of sacrificed alternatives
. For instance, aperson chooses to forgo his present lucrative job which offers him Rs.50000 per month,and organizes his own business. The opportunity cost is Rs. 50,000.
Choice between alternative projects, Investment decisions.
Equimarginal concept
refers to the marginal utility of a product. Marginal Utility is theutility derived from the additional unit of a commodity consumed. The laws of equi-marginal utility states that a consumer will reach the stage of equilibrium when themarginal utilities of various commodities he consumes are equal. Also in resourceallocation to various activities, the marginal product of each resource added isconsidered. An optimum resource allocation is said to be achieved when the value of marginal product of each activity is the same.
Resource allocation.
What are firms? Mention the Types, Objectives and goals of firms.
Firm is an organization owned by one or jointly by a few or many people, engaged ina productive activity, with a definite aim.
Types of firms1. Private sector:
The ownership is exclusively in the hands of private individuals.a. Sole Proprietorship:Owned and controlled by a single individual. Eg: retail trades, service industries, cottageand small scale industries.b. Partnership:

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