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Unit 1, Microecomics theory, Economics Viewpoints, Three types of problems…
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Microecomics theory
Production theory
The production theory mainly deals with the issues related to production. It explains the changes in the cost of a product or service and the effect on the total output with change in a particular factor (input) while keeping the other factors at constant.
Price Thoery
The price theory is concerned with the analysis of market structure and determination of price. It also enables managers to determine the conditions that are conducive and profitable for price discrimination as well as how advertising would help in increasing the sales of an organisation.
Profit theory
It is a well-known fact that the main objective of any organisation is to earn profit. However, an organisation does not always earn the same amount of profit every time due to uncertain business conditions with respect to changes in product demand, prices of input and competition level. There is always a condition of risk even when an organisation has employed the best technique for production. Therefore, managing profit of an organisation helps in minimising the risk factor and predicting the actual profit for future.
Capital theory
Capital is a scarce resource of an organisation; therefore, it should be allocated efficiently. Generally, managers, while managing capital, face issues related to the selection of investment project and efficient allocation of capital. These issues are dealt with the help of the capital theory. The capital theory helps managers in investment decision making, selecting appropriate projects and capital budgeting.
Demand Theory
This theory helps managers to determine the factors that affect the buying decisions of consumers and their needs and requirements.
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Managerial Economics
“Managerial economics is concerned with the application of economic principles and methodologies to the decision making process within the firm or organisation.
managerial economics serves as a link amid the two disciplines, namely management and economics. The management discipline is concerned with a number of principles that help in business decision making and enhancing the efficiency of business organisations. Alternatively, economics is related to an optimum allotment of limited resources for attaining the set objectives of a business organisation. Consequently, it can be said that managerial economics is a particular discipline of economics that can be functional in business decision making of organisations.
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