BUSINESS ECONOMICS

BBA 107
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BY:
Dr. Dr. Varsha Goyal

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 Syllabus

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 1.1 Introduction of Economics

1.2 Nature, Scope and definition of Economics

1.3 Difference between Economics and Business Economics

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1.4 Applications
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1.5 Micro Economics vs Macro Economics

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 1.6
1.1 Opportunity
MEANING Cost,
AND Marginalism,
CONCEPT OF incrementalism
BUSINESS ECONOMICS

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1.2 Time ValueAND
NATURE of Money
SCOPE OF BUSINESS ECONOMICS

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1.3 Market Forces and
DIFFERENCE Equilibrium
BETWEEN BUSINESS ECONOMICS AND
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1.4 Risk, Return
APPLICATION ha andOF
Profit
BUSINESS ECONOMICS TO ECONOMICS
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1.5 Behavioral
MICRO VSEconomics and Nudge Theory
MACRO ECONOMICS

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 1.6
Opportunity Cost,
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 Introduction
• Opportunity cost is a concept in Economics that is defined as those values or
benefits that are lost by a business, business owners or organisations when
they choose one option or an alternative option over another option, in the
course of making business decisions.
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• In simple words, it can be said as the value that is lost when a business is
choosing between two
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opportunity costvawill always mean that the investment choices made will be
carrying immediate loss or gain in the future.

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• Opportunity costs can be viewed as a trade off. Trade offs happen in
decision making when one option is chosen over another option.
Opportunity costs sums up the total cost for that trade off.

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 •Opportunity cost is the forgone benefit that would have been derived
from an option not chosen.

“Opportunity cost is the value of the next-best alternative when a decision

is made; it's what is given up,” oel
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For example:
1. If Mr. A hashtwo
a options for job one in IIM Ahmadabad (2 lac ) and
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other is in
option which he gave up will be opportunity cost i.e. DU (1.5 lac)

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Importance of Opportunity Cost

.1. It's a measure of the cost of alternatives like sacrificing short-

term profits.

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2. It is used to analyze the potential

3. And it can help you determine whether or not a particular

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course ofarsaction is worth pursuing.
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4. It can help you make better decisions.

Dr. 5. It helps to assess opportunity costs and benefits.

6. It encourages you to think about the future.

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 Example

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 Incrementalism
Incremental analysis is a problem-solving approach that
applies accounting information to decision making.
Incremental analysis can identify the potential outcomes
of one alternative compared to another.
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Example of incremental analysis, assume a company sells
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an item for $300. The company pays $125 for labor, $50 for
materials, and rs$25
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The company also allocates $50 per item for fixed
overhead costs. The company is not operating at capacity
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overtime to accept a special order it receives. Then, a
special order requests the purchase of 15 items for $225
each
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The sum of all variable costs and fixed costs per item is $250. However, the
$50 of allocated fixed overhead costs are a sunk cost and are already
spent. The company has excess capacity and should only consider the
relevant costs. Therefore, the cost to produce the special order is $200 per
item ($125 + $50 + $25) and the profit el
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While the company is still able to make a profit on this special order, the
company must consider s ha the ramifications of operating at full capacity. If
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no excess capacity visa present, additional expenses to consider include
investment in new fixed assets, overtime labor costs, and the opportunity
costDof
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 Conclusion
Every choice we make also means giving up another option. If I buy a
building, I won’t have the time and money to buy a different one, or to invest
in technology.
When a business is faced with different choices, it must assess the costs of
each option if it wants to make a strategicoel choice. Opportunity cost is the
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difference in the cost of two options.
“Taking the time to assess a
the opportunity cost is important to make a choice
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var than just instinct or enthusiasm,”
based on numbers rather
Opportunity cost is the forgone cost of taking next best alternative.
1. “Interest”
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2. “Salary” that an entrepreneur could get from somewhere else, if he
works.
3. “Rent” which is sacrificed by using own land in own business
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 Suggested Readings

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Author: Go
Ravikesh Shrivastav
Title of the Book: Managerial Economics
Chapter’s Name: a Cost Theory and Estimation
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2. Author: Dr. D. M Mithani
Title of the Book: Managerial Economics
Dr. Chapter’s Name: Coat Analysis

By: varsha Goel 19