MICRO ECONOMICS-1

SEMESTER1
CONTENTS-

 Introduction to Business Economics .

 Market demand and supply
 Demand function
 Elasticity of demand
 Demand estimation and forecasting
 Theory of production
 Short run and long run
 economies and diseconomies of scale
 Cost concepts
 Cost output relationship
 Break even analysis
MODULE 4- COST OF PRODUCTION

 COST CONCEPTS
 COST-OUTPUT RELATIONSHIPS
 BREAK EVEN ANALYSIS
MEANING

 ECONOMICS –is the science which studies human behaviour as a relationship

between ends and scarce means which have alternative uses.(wants are
unlimited and resources are limited)
 The term MICRO AND MACRO ECONOMICS were first coined and used by
Ragner Frisch in1933
 According to KENNETH BOULDING
“MICRO ECONOMICS- is the study of particular firms. Particular households,
individual prices, wages, incomes, individual industries, particular commodities”
It is a study of individual units.
 Is the microscopic study
INTRODUCTION TO BUSINESS ECONOMICS

 BUSINESS ECONOMICS is a field of Economics that deals with issues such as

Business organisation, management, expansion and strategy
 BUSINESS ECONOMICS- uses economic theory and quantitative methods to
analyse the functioning of business enterprise.
 IT focuses on the application of fundamental economic theories and laws in
the decision making process of enterprise
 BUSINESS---------------------------------------------------PROFIT, SUCCESS,
SURVIVAL, EXPANSION
Explain the meaning and scope of Business
Economics

 MEANING
 SCOPE
 1. Market Demand and supply
 2.Production analysis
 3.Cost and profit Analysis
 4.Market Structures
 5. Pricing
 6.Forecast and policy
 7. Project planning
MARKET DEMAND AND SUPPLY

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MARKET DEMAND AND SUPPLY

 BUSINESS ECONOMICS- MARKET



 PRODUCER CONSUMER
 produce goods for market consume or buys goods and services
 - interaction between demand and supply determine price
 - price determine and sale determine total revenue
 -total revenue- total cost= profit
 (BUSINESS PROFIT, SURVIVAL, SUCCESS AND EXPANSION)
 PRODUCTION ANALYSIS-
Process of production, optimum use of resources, maximise production , minimise cost- laws of production, production period

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This Photo by Unknown Author is licensed under

CC BY-SA-NC
COST AND PROFIT ANALYSIS

 COST CONCEPTS- total revenue- total cost= profit

 decision regarding-minimise cost and maximise production
 (need to study)

 COST FUNCTION ,BEHAVIOUR OF COST IN THE SHORT RUN AND LONG RUN
 PROFIT ANALYSIS- TR-TC= Excess profit, normal profit, loss, subnormal profit
MARKET STRUCTURES

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PRICING STRATEGY

 - price and sale determine total revenue-

 PRICE DETERMINE FIRMS REVENUE AND PROFIT
 Different pricing strategy used by different firms
 Marginal cost pricing, cost plus pricing, multi product pricing, transfer pricing
Demand forecasting policy

 Meaning, importance, methods and types of demand forecasting

BASIC CONCEPTS

 Opportunity cost- The cost of choosing the next best

alternative.
 It arises due to scarcity of resources and resources have
alternative uses
 It is also called as cost of forgone alternative
 The concept is important for business economics analyses to
understand how choices are made by households , firms and
government
 The oc of a chosen activity is the value of next best alternative
that is foregone
3. FUNCTIONAL RELATIONS AND TOOLS
FOR ECONOMIC ANALYSIS
 VARIABLES- Variables is something whose magnitude can change or can take
on different value
 Variables frequently used in business economics are price ,profit ,revenue
,cost ,investment .
 It is represented by symbol
 For instance price may be represented by P, cost by C,output by Q, INCOME
BY Y and so on.
 Variables can be endogenous or exogenous.
 Endogenous variables- explained within the theory
 Exogenous variables- is determined by factors outside the theory.
CONTD

Function – Function is used to describe and symbolise relationship between

variables . It explains how one variables is depends on other variable.
Example : The quantity/ goods demanded is depends, de on the price of that
commodity. Technically, it means that demand is the function of price of that
commodity.

D x = F(Px).demand and price has inverse relationship.

Demand is the function of many variables , such as price of the commodity
,income, advertisement ,price of other commodity.
Dx=F(px, Y, w, Ps, Pc, A)
EQUATION

 Helps to know unknown variable.

 An equation specifies the relationship between independent and dependent
variable.
 The specific relation between two or more variables is specified in the form
of equation.
 The function Qx=f(px) can be expressed in the
form of equation as Q=a-b(P)
SLOPE

 SHOW US HOW FAST OR AT WHAT RATE THE DEPENDENT VARIABLE CHANGES

IN RESPONSE TO THE INDEPENDENT VARIABLE
 AMOUNT OF CHANGE IN THE DEPENDENT VARIABLE PER UNIT CCHANGE IN THE
INDEPENDENT VARIABLE
 SLOPE = VERTICAL CHANGE DIVIDE BY HORIZONTAL CHANGE
 SLOPE CAN BE POSITIVE, NEGATIVE .
 If the line is straight its slope is constant everywhere.
 A curved or a non linear has different measurement of slope at different
points.
 Positive slope Negative slope

Y axis

POPOPOPOPEO

X axis
CURVE

The functional relationship between two variables is specified with the help of
equation .This relationship can be shown by drawing lines on the graph
The line only suggest but does not prove the relationship between variables and
this line is curve.
Curve can be linear or non linear
Posicucsffsgytw7t7tive slope
CURVE
GRAPH

 = - Important tool
 - used to represent relationship between
 variables through a visual picture
 -has vertical X AXIS AND Y AXIS,’O ‘ is the
 origin where the axes meet
 -
INTERCEPT

 Is the point at which the line or a curve crosses the vertical axis
 It is the height of the graph where the line crosses the vertical axis.
 In the diagram ED CROSSES THE VERTICAL AXIS
 Therefore OE is the intercept