Economics & Principles of Management

1. Economics & Principles of Management Supply

2. Supply - Definition • Supply means the quantity offered for sale by sellers at particular prices, during a certain period of time

3. Law of supply • The higher the price , greater the supply, lower the price lower the supply

4. Supply Curve DVDs

5. Supply & Demand

6. Factors of supply Price Cost of production Technical knowledge Environment Level of income of production Firm’s behavior

7. Factors of supply - Price • If price rises production  more profitable  supply increases • If price falls  production  less profitable  supply decreases

8. Factors of supply - Cost of production • Changes in 1) raw materials 2) wage rates 3)labour productivity 4) taxation

9. Factors of supply - Technical knowledge • Progress of technology

10. Factors of supply - Environment • Agricultural commodities depends on 1) Monsoons 2) Flood 3) Drought 4) Natural calamities

11. Factors of supply - Level of income of producers • Because the price of agricultural products cultivators consumes more of the foodstuffs  send less to the market

12. Factors of supply - Firm’s behavior • 1) If profit maximum – objective Marginal revenue = marginal cost • 2) If sales maximum - objective Production then supply

14. Supply function • q = ap + b q - supply p - price a and b - constants

15. Exceptions to the Law of Supply 1) Increase of wages sometimes reduce the supply of labour 2) Supply fixed eg  pictures of a dead painter

16. Elasticity of supply • If a small change of price causes • more than proportional change in supply called elastic 2) less than proportional change in supply called inelastic

17. Elasticity of Supply ( ES ) proportional change in supply ES = proportional change in price

18. Factors determining Elasticity of Supply • Availability of the factors of production • The rate of production • Length of time needed to reorganize production in order to adjust supply to demand • possibilities of altering the technique of production • Availability of alternative markets

19. Types of Elasticity of Supply • Perfectly elastic supply • Perfectly inelastic supply • Relatively elastic supply • Relatively inelastic supply • Unitary elastic supply

20. Types of Elasticity of Supply

21. Type of costs 1) Actual cost 2) Economics cost 3) Opportunity cost 4) Sunk costs 5) Fixed costs 6) Variable costs

22. Type of costs 7) Marginal cost 8) Incremental cost 9) Short – run costs 10) Long run costs 11) Historical and Replacement costs

23. Type of costs • 1) Actual cost • The amount spent for producing a product wages materials transportation salaries power Amount

24. Type of costs 2) Economics cost includes the resources owned by the firm as well as those hired from outside A) Explicit cost  out - of – pocket costs ie payment to outside the firm B) Implicit costs  book cost or non-cash costs refers to the payment

25. Type of costs 3) Opportunity cost Revenue which could have been earned employing that product

26. Type of costs 4) Sunk costs Costs of the past - forfeited

27. Type of costs 5) Fixed costs Capital Rent on leased buildings Cost of plant Equipments Deprecation Wages and salaries of permanent employees Interest on borrowings

28. Type of costs 6) Variable costs Cost of raw materials Wages and salaries of the temporary employees Costs of all other output that vary with output

29. Type of costs 7) Marginal cost On account of producing an additional unit of the product

30. Type of costs 8) Incremental cost Increasing the output by one or more units Arise owing to A)change in production line B)introduction of new product C)replacement of old technique of production D)replacement of worn –out plant

31. Type of costs 9) Short – run costs Costs within the given production capacity , the size of the firm remains the same

32. Type of costs 10) Long run costs all costs including fixed assets like plant , building machinery etc become variable costs

33. Type of costs 11) Historical and Replacement costs asset acquired in the past replacing the same asset for future

34. Total cost • Total cost = fixed cost + variable cost

35. Cost calculation

36. Economics & Principles of Management Pricing

37. Pricing Objectives • Pricing for Target Return • Market Share • To Meet or Prevent Competition • Profit Maximization • Stabilize Price • Customer’s Ability to pay • Resource Mobilization

38. Pricing for Target Return • Business needs capital in the shape of assets and working capital • Firms wants to secure a certain % of return on their investment • The target may be for a long term or short term • The target chosen can be revised from time to time

39. Market Share • Expected volumes of sales • Lower the price to capture the market • Low pricing policy adopted by large scale manufaturer

40. To Meet or Prevent Competition • Price of similar products produced by other firms have to be considered • At the time of introduction of new products, a low price policy to attract customers & discourages the competitors

41. Profit Maximization • Maximize profits on total output rather than on every item • Profit maximization enjoyed where monopolistic situation exists • A sort – run policy adopted for maximizing profit leads to exploiting customers & attract customers • a long –run policy to maximize profit no drawbacks

42. Stabilize Price • A long time objective & aims at preventing fluctuations in price & price war • During the period of depressions, prices not allowed to fall below & In the boom period , prices not allowed to rise beyond a certain level

43. Customer’s Ability to pay • Prices charged differ from person to person. Eg doctors charge fees according to the capacity of the patient

44. Resource Mobilization • Resources made available to the firm’s expansion • Marketers interested in getting back the amount invested as speedy as possible • Setting higher price  trend invite competitors with low priced similar products

45. Factors Affecting Pricing Decisions • Internal factors • External factors

46. Demand Competition Economic conditions Buyers Suppliers Government Organizational Factors Marketing mix Product differentiations Cost of the Product Objective of the firm

47. Factors Affecting Pricing Decisions-Internal factors • Organizational Factors • Marketing mix • Product differentiation • Cost of the Product • Objectives of the firm

48. Organizational Factors • Overall price strategy dealt by top executives • The actual mechanics of pricing dealt with lower levels focusing on individual product strategies

49. Marketing mix • A shift in any of the elements effect on • Production • Promotion • Distribution • A more impressive looking package may begin a new advertising campaign

50. Product Differentiation • Different characteristics added such as • Quality • Size • Color • Attractive package • Alternative uses • Customers may pay more for the new style, fashion, better package etc