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# Role of Managerial Economist

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Making specific decisions General task of the managers Managerial economist gained an increasing importance in business in recent times. He can be very useful for successful management as his contribution can be substantial in solving the problems of decision making and forward planning

Specific decisions           Production scheduling DD Forecasting Market research Economic analysis of the industry Investment appraisal Security management analysis Advice on foreign exchange management Advice on trade Pricing and related decisions and Analysing and forecasting environmental factors. .

General Tasks a) External factors  General economic condition of the economy  Demand for the product  Input cost of the firm  Market conditions  Firm’s share in the market  Govt’s Economic policies and central bank’s monetary policies .

b) Internal factors    To forecasts their future trend Investment decision Analysising the general factors .

3.Fundamental concepts 1. Incremental concept Concept of time perspective The discounting principle The concept of opportunity cost The Equi.marginal principle . 2. 4. 5.

Incremental concept   Incremental cost : Change in the total cost Incremental revenue Change in total revenue .

Incremental cost formula: IC= C2-C1 =ΔC Marginal cost MC =C2 –C1 Q2-Q1 ΔC IC-Incremental Concept C2-New total cost ΔQ C1-Old total cost .

Revenues  Incremental Revenue IR= R2-R1 = ΔR Marginal Revenue R2-R1 MR= Q2-Q1  =ΔR/ΔQ .

8 Increased sales =1500units IR =R2-R1 R2=(8x1500)=12000 R1=10x1000=10000 IR=2000 MR= R2-R1 /Q2-Q1 12000-10000/1500 1000 2000/500 =Rs.4 IR=Rs.2000 MR=Rs.Example For Incremental Cost and Revenue Price per unit=Rs.4 .10 Sales in unit =1000 Price falls to =Rs.

50.000 The full cost estimated by the accountant is as follows .Implication of Incremental Reasoning         Business men hold view :”Make a profit on every job” They refuse orders that do not cover full cost For eg: New order will bring Additional Revenue of Rs.

Labour cost: 15.000   It is unfavourable because the firm incur loss of Rs.Metarial cost: 20. 15.000 3.Metarial cost: 20.000 4.000  Because of two assumptions the firm earned profit  The assumption is i) existence of idle capacity ii)absence of more profitablealternatives .Overhead cost : 5.000  Absence of selling and administrative cost the firm will earn profit of Rs.Labour cost: 10. Selling and administrative cost: 7000 Total 60.000 3.10.Overhead cost : 18.000 2.000 2.1.000 Total 35.000 Suppose the firm makes incrementalcost as------»» 1.

Concept of time perspective    i) ii) iii) iv) Time plays a crucial role in in the field of pricing Marshall introduced the element of time in value theory He introduced four market forms Very short period Short period Long period Very long period or secular period .2.

3.Discounting principle   The concept of time value of money refers to the fact that the value value of money to be received at different point of time will not be the same today Therefore it is necessary to know the techniques for measuring the value today of money to be received or paid at different point of time .

 The equation for the future value of any amount ‘S’ for ‘n’ periods at an interest of ‘r’ is FVn= S(1+r)n .

.price determination. In short. This means the cost of using something in a particular venture is the benefit foregone by not using it its best alternatives. It is applied in determining the factor prices . Opportunity cost       It is a cost of displaced alternatives. consumption and public expenditure. next best alternative commodity that is sacrificed. It represents only sacrificed alternatives and is not recorded in any financial account. It requires measurement of sacrifices.4.

B. VMPLA =VMPLB=VMPLC=VMPLD . Equimarginal principle     An important proposition of economics is that an input should be allocated in such a way that the value added by the last unit is the same in all uses.5. For eg: Firm involves four activities. A. The firm allocates labour for all activities in such a manner value of the marginal product is equal in all activities. All these requires labour.C and D.

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