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Micro& Macro Economics

Micro& Macro Economics

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Published by Mayank Mehta

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Published by: Mayank Mehta on Jun 14, 2011
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Micro and Macro Economics


Micro eco does a microscopic study of economystudy of equilibrium of several units of the economy (piece meal )and their inter-relationship to each other-study of individuals or households, individual firms etc-their role in the working of the whole economic organisation Macro eco is concerned with the behaviour of the economy as a whole-with booms and recession, economy¶s total output of goods and services and their growth, rate of inflation and employment, balance of payment and exchange rate

easy and cheap credit facilities.Economy of information regarding mkt conditions-availability of factors. enjoy the benefits of localization and specialization. transport etc 3. better transport and mktg conditions 2. credit.Economies and Diseconomies      Economies are external and internal External Economies-advantages that arise due to expansion in the industry¶s size 1.economy of concentration-firms producing similar products and clustered in same area or location.Economies of disintegration-large number of firms located in an area enables better disposal of waste and by-products eg in the case of a single sugar mill. the molasses would go waste .

mkt etc . economies of increased dimension and economies of linked processes 2. cheaper transport facility available etc 4.Marketing economies. easy access to credit from banks etc 5.Managerial economies-creation of functional depts to deal with specific tasks 3.Risk bearing economies-big firms better placed to absorb risks by diversifying -production.      Internal Economies-advantages arising in reduction of production costs because of expansion in the size of the firm.availability of raw materials at low price reduces cost of prodn-bargaining power increases.Financial economies-better credit worthiness in the mkt. 1.Technical economies due to economies of superior techniques. processes of production.

mechanization etc .Economies of vertical integrationintegration of different stages of production to reduce cost eg regular supply of raw materials and steady outlets for their usage make prodn planning more certain and less subject to erratic and unpredictable changes 7. mktg expenses.Other economies-lower advertising cost. decentralization of decision making.  6.

revenue and profit Important bridge between business behaviour and economic theory of the firm-refer diagram BE pt (B) is where TR=TC (net profit=zero) and output=OQ .Break Even Analysis       BE analysis involves the determination of the BE point located at that level of output or sales at which net income or profit is zero At this pt total cost =total revenue-no profit and no loss Important tool to trace relationship between cost. revenue and profit and different output levels or sales Explains impact of volume of output on cost.

Beyond OQ output. firm is in loss -thus BE analysis provides a flexible set of projections of cost and revenue under given conditions and facilitates profit prediction and making -it helps in making µsafety¶ margins regarding the extent to firm can permit decline in sales without incurring loss -it also determines the target profit sales volume and helps in cost control  . firm makes profit ie difference between TR and TC =profit -below OQ output.

Q ±(unit price*output) TC=TVC+TFC-(now TVC=variable cost per unit of output*output) TC=AVC*Q+TFC If Qb output is BE pt.Qb-AVC.Qb=TFC Qb(P-AVC)=TFC ie Qb=TFC/P-AVC .Qb P.Break Even Analysis-algebric method         Profit (a)=TR-TC TR=P.Qb=TFC+AVC. then TR=TCb P.

Thus BE output is determined by TFC. then Qt (new output)= TFC+a/P-AVC  . price of output or AVC ±changes in any will change BE output. Denominator (P-AVC) is profit contribution per unit  BE analysis is used to determine output level to achieve target profit  If target profit=a.

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