C 2 Managerial Economics 1) State Law Of Demand ?

Ans: law of demand basically says when the price of a certain product goes up,quantity
demanded of that product goes down. when price goes down, quantity demanded goes up.

2) What Does Perfect Competition Mean? Ans: Perfect competition is basically an economic model that helps to describe a
hypothetical market form. In this form the producer or the consumer does have any kind of market authority in order to make changes in prices.

3) What is a demand forecast?

Ans :A demand forecast is the prediction of what will happen to your company's existing product sales. It would be best to determine the demand forecast using a multi-functional approach. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast 4)

Equilibrium of the Firm and Industry ?

Ans:

According to Miller, Firm is an organisation that buys and hires resources and sells goods and services. Lipsey has defined as firm is the unit that employs factors of production to produce commodities that it sells to other firms, to households, or to the government.

5)Explain factors influencing managerial decision ? Ans: Critical managerial decision making is the key to superior performance at work. One
has to refer to critical Data, past records and performance metrics and analysis before making decisions. Mc Kinsey study tries to assess the various factors which influence decision making at work

10 Marks Questions
1) Conditions of Equilibrium of the Firm and Industry A firm is in equilibrium when it has no propensity to modify its level of productivity. It requires neither extension nor retrenchment. It wants to earn maximum profits in by equating its marginal cost with its marginal revenue, i.e. MC = MR. Diagrammatically, the conditions of equilibrium of the firm are (1) the MC curve must equal the MR curve. This is the first order and essential condition. But this is not a sufficient condition which may be fulfilled yet the firm may not be in equilibrium. (2) The MC curve must cut the MR curve from below and after the point of equilibrium it must be above the MR. This is the second order condition. Under conditions of perfect competition, the MR curve of a firm overlaps with the AR curve. The MR curve is parallel to the X axis. Hence the firm is in equilibrium when MC = MR = AR.

The first order figure (1), the MC curve cuts the MR curve first at point X. It contends the condition of MC = MR, but it is not a point of maximum profits for the reason that after point X, the MC curve is beneath the MR curve. It does not pay the firm to produce the minimum output OM when it can earn huge profits by producing beyond OM. Point Y is of maximum profits where both the situations are fulfilled. Amidst points X and Y it pays the firm to enlarges its productivity for the reason that its MR > MC. It will nevertheless stop additional production when it reaches the OM1 level of productivity where the firm fulfils both the circumstances of equilibrium. If it has any plants to produce more than OM1 it will be incurring losses, for its marginal cost exceeds its marginal revenue beyond the equilibrium

point Y. The same finale hold good in the case of straight line MC curve and it is presented in the figure (2).

An industry is in equilibrium, first when there is no propensity for the firms either to leave or either the industry and next, when each firm is also in equilibrium. The first clause entails that the average cost curves overlap with the average revenue curves of all the firms in the industry. They are earning only normal profits, which are believed to be incorporated in the average cost curves of the firms. The second condition entails the equality of MC and MR. Under a perfectly competitive industry these two circumstances must be fulfilled at the point of equilibrium i.e. MC = MR. (1), AC = AR. (2), AR = MR. Hence MC = AC = AR. Such a position represents full equilibrium of the industry.

3) Explain factors influencing managerial decision making what are various important decisions in different functional management?
Ans: Critical managerial decision making is the key to superior performance at work. One has to refer to critical Data, past records and performance metrics and analysis before making decisions. Mc Kinsey study tries to assess the various factors which influence decision making at work. Executives often end up referring to wrong sources, which lacks scientific rigor and credentials in its finding, for arriving critical decisions. Just because one strategy works for a particular organization may not prove to be equally effective for other enterprises. Unfortunately, many of the studies are deeply flawed and based on questionable data that can lead to erroneous conclusions. Worse, they give rise to the especially grievous notion that business success follows predictably from implementing a few key steps. In promoting this idea, authors obscure a more basic truthnamely, that in the business world success is the result of decisions made under conditions of uncertainty and shaped in part by factors outside our control. In the real world, given the flux of competitive dynamics, even seemingly good choices do not always lead to favorable outcomes. This reliance on questionable data, in turn, gives rise to a number of further errors in logic. Two delusionsof absolute performance and of lasting successhave particularly serious repercussions for business strategists. Its actually a real problem which many strategist face and typically too much of analysis may lead to complicated or erroneous conclusions if the context of the reference is not verified. Sometimes a single factor can be picked up as a major perceived thereat and instead of

finding a meaningful and objective solution based on organizations own reality decisions may be unduly influenced by halo impressions. The following are the factors influencing Managerial decision making 1. Preparation of Budget:- Decision-making involves budget allocation i.e., resource allocation to various aspect of decision. Budget may be allocated to various factors of production. 2. Future Development:- Strategic plans are usually expected to have a significance future prosperity of the organization. This is because there is a long-term commitment. In case of absence of long-term commitment the firm cannot achieve future development. 3. Orientation:- Strategic planning should keep in view of the competition existing in the market. Some times firms have to face non-price competition. 4. Factors of Environment:- Plans are always influenced by business environment always influencing factor for decision-making. There may external or internal that influence business. Buyers, Suppliers, government and competitors are likely to react in accordance with changes in environment. Thus business also should act in the same passion. 5. Risk:- Strategic plans mostly face the problem of risk. The plans should able to tackle the risk bearing capacity. Risk and uncertainty are two important aspects, which can not be expected by business man. The following are the various important decisions in different functional management. 1. Planning:- It is a stage of Strategic Formulation. Strategic formulation includes forecasting, formulating objectives, policies and goals. 2. Organizing:- It is strategy implementation process. It includes all those managerial activities that result in a structure of task, authority and responsibility relationship. 3. Directing:- It also comes under strategy implementation process. Directing involves efforts directed towards shaping human behavioral. It includes; leadership, communication, motivation, morale, organizational change etc., 4. Staffing:- Recruitment is an important function of Staff. Man power is required to implement strategies. 5. Controlling:- It can be called as Strategy Evaluation. Controlling refer to all those activities directed towards assuring that actual results are consistent with planned targets. Mr. G. Lakshman Rao, M.Com, M.Phil, E.Com, LL.B