8aslc Lconomlcs ConcepLs ln

ueclslon Maklng
Basic Economics Concepts in
Decision Making:-
r|nc|p|e of Cpportun|ty Cost 1he ConcepL of opporLunlLy
cosL ls relaLed Lo Lhe alLernaLlve uses of scarce resources
1hey are scarce ln relaLlon Lo demand for Lhem Lo saLlsfy Lhe
ever growlng human needs 1he ScarclLy Lhe alLernaLlve
uses of Lhe resources glve rlse Lo Lhe concepL of opporLunlLy
cosLpporLunlLy CosL ls noL recorded ln Lhe books of
accounLs
2 r|nc|p|e of Lqu|marg|na| 1hls rlnclple ls also known as
Lhe prlnclple of maxlmum saLlsfacLlonccordlng Lo Lhls
prlnclple an lnpuL should be allocaLed ln such a manner LhaL
Lhe value added by Lhe lasL unlL of lnpuL ls same ln all uses
3 r|nc|p|e of Incrementa| Cost 1he lncremenLal rlnclple ls
applled Lo buslness declslons whlch lnvolve bulk producLlon
Basic Economics Concepts in
Decision Making:-
and a large lncrease ln LoLal cosL LoLal revenue Such as
lncrease ln LoLal cosL LoLal revenue ls called 'lncremenLal
cosL' 'lncremenLal revenue' respecLlvely relaLed Lo
'lncremenLal ouLpuL lncremenLal cosLs can be deflned as Lhe
cosLs LhaL arlse due Lo a buslness declslon
r|nc|p|e of 1|me erspect|ve ll Lhe declslons of a buslness
flrm should be Laken only afLer conslderlng Lhe shorL run
Long run effecLs of declslons on cosLs revenues1he
buslness declslonmaker musL assess deLermlne Lhe Llme
perspecLlve of buslness proposlLlons well ln advance make
declslons accordlngly
Basic Economics Concepts in
Decision Making:-
r|nc|p|e of Contr|but|on Ana|ys|s 1he conLrlbuLlon
of buslness declslon can be deflned as Lhe dlfference
beLween Lhe lncremenLal revenue and Lhe
lncremenLal cosL assoclaLed wlLh LhaL parLlcular
declslon lL ls useful Lechnlque for Laklng a declslon
on
a) WheLher or noL Lo accepL a pro[ecL
b) WheLher or noL Lo lnLroduce a new producL
c) WheLher or noL Lo accepL a fresh order
d) WheLher or noL Lo add an addlLlonal planL
e) WheLher Lo make or Lo buy so on