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Business Economics

Business Economics, also known as Managerial Economics, applies economic theory to business decision-making, linking economic concepts with practical management. Its scope includes market demand and supply, production and cost analysis, market structure, pricing techniques, forecasting, inventory management, resource allocation, and capital budgeting. Understanding business economics is crucial for making informed decisions, designing effective policies, and optimizing business operations.

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3 views9 pages

Business Economics

Business Economics, also known as Managerial Economics, applies economic theory to business decision-making, linking economic concepts with practical management. Its scope includes market demand and supply, production and cost analysis, market structure, pricing techniques, forecasting, inventory management, resource allocation, and capital budgeting. Understanding business economics is crucial for making informed decisions, designing effective policies, and optimizing business operations.

Uploaded by

ronityadav123123
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We take content rights seriously. If you suspect this is your content, claim it here.
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BUSINESS ECONOMICS

NAME : RONIT YADAV

ROLL NO : 268
CLASS : F.Y. BCOM
DIV : B
INTRODUCTION TO
BUSINESS ECONOMICS
1. MEANING
Business Economics is also called as Managerial Economics. It involves application of
economic theory and practice to business. In business, decision making is very
important. Decision making is a process of selecting one course of action out of
available alternatives. Thus business economics serves as a link between economic
theory and decision-making in the context of business. Following are few definitions
of Business Economics

enHry and Hayne: “Business economics is economics applied in


decision making. It is a special branch of economics. That bridges
the gap between abstract theory and managerial
1.1.2 SCOPE OF BUSINESS ECONOMICS Scope
• Scope is nothing but the subject matter of business economics. Scope of Business Economics is very wide.
• 1) Market Demand and Supply
• In economics both demand and supply are the important forces through which market economy functions.
Individual demand for a product is based on an individual’s choice / Preferences among different products, price of
the product, income etc. Individual demand is nothing but desire backed by individual’s ability and willingness to
pay. By summing up the demand of all the consumers or individuals for the product we get market demand for that
particular product. Individual Supply is the amount of a product that producer is willing to sell at given prices. By
summing up the supply of all the producers for the product we get market supply for that particular product. The
market price where the quantity of goods supplied is equal to the quantity of goods demanded is called as
equilibrium price. Existence, growth and future of business or firm depends on what price market determines for its
product.
• 2) Production and Cost Analysis
• Knowledge of business economics helps manager to do production and cost analysis. Production analysis helps to
understand process of production and to make optimum utilisation of available resources. Cost analysis on the
other hand helps firm to identify various costs and plan budget accordingly. Both production and cost analysis will
help firm to maximize profit.
• 3) Market structure and Pricing Techniques
• Markets are very important in business economics. Study of markets such as perfect completion, monopoly,
oligopoly, monopolistic market etc. is very significant for producers. It is very imperative for manager or producer to
identify type of market that will be there for their products. Knowledge of markets and competition will help them
to take better decision regarding pricing of the product, marketing strategies etc. Pricing techniques, on the other
hand, helps the firms to decide best remunerative price at different kinds of market.
4) Forecasting and coverage of risk and uncertainty.
Knowledge of business economics helps manager to forecast future. For example Demand forecasting. It means
estimation of demand for the product for a future period. Demand forecasting enables an organization to take various
decisions in business, such as planning about production process, purchasing of raw materials, managing funds in the
business, and determining the price of the commodity. Likewise forecasting future helps firm to take important
decisions and cover risk and uncertainty associated with those decisions.
5) Inventory Management
Knowledge of business economics will help producer to reduce costs associated with maintenance of inventory such as
raw materials, finished goods etc.
6) Allocation of resources
Business Economics provides advanced tools such as linear programming which helps to achieve optimal utilisation of
available resources.
7) Capital Budgeting
Capital budgeting or investment appraisal is an official procedure used by firms for assessing and evaluating possible
expenses or investments. It is a process of planning of expenditure which involves current expenditure on fixed/durable
assets in return for estimated flow of benefits in the long run. Investment appraisal is the procedure which involves
planning for determining whether firm’s long term investments such as heavy machinery, new plant, research and
development projects are worth the funding or not. Knowledge of business economics helps producer to take
appropriate investment decisions with the help of capital budgeting.
1.1.3 IMPORTANCE OF BUSINESS ECONOMICS
1. Knowledge of business economics helps business organization
to take important decisions as it deals with application of
economics in real life situation.
2. It helps manager or owner of firm to design policies suitable for
their firm or business.
3. Business economics is useful in planning future course of actions.
4. It helps to control cost and monitor profit by doing cost benefit analysis.
5. It helps in forecasting future for taking important decisions in present.
6. It helps to set appropriate prices for various products by using
available pricing techniques.
7. It helps to analyse effects of various government policies on
business and take appropriate decision.
8. It helps to degree of efficiency of firms by using various economic tools.
1.3 BASIC ECONOMIC RELATIONS - FUNCTIONAL
RELATIONS: EQUATIONS- TOTAL, AVERAGE AND
MARGINAL RELATIONS
The Relationship between Total, Average and Marginal can
be explained with the help of concepts like utility, cost, revenue etc.
Here we will take example of revenue concepts.
Where, P = Price & Q = Quantity
TR = Total Revenue
AR = Average Revenue
MR = Marginal Revenue
QUANTITY PRICE TR AR MR

1 30 30 30 30

2 28 56 28 26

3 26 78 26 22

4 24 96 24 18

5 22 110 22 14

6 20 120 20 10

7 18 126 18 6

8 16 128 16 2
9 14 126 14 -2
10 12 120 12 -6
Total revenue is calculated by multiplying price and quantity. As quantity increases TR increases initially then it
decreases. AR is same as price. MR decreases constantly and becomes negative eventually. Important concepts

1. Variables
A variable is magnitude of interest that can be measured. Variables can be endogenous and exogenous variables.
Variables can be independent and dependent.
2. Functions
Function shows existence of relationship between two or more variables. It indicates how the value of one variable
depends on the value of another one. It does not give any direction of relation.
3. Equations
An equation specifies the relationship between the dependent and independent variables. It specifies the direction of
relation.
4. Graph
Graph is a geometric tool used to express the relationship between variables. It is a pictorial representation of data
which shows how two or more sets of data or variables are related to one another
5. Curves
The functional relationship between the variables specified in the form of equations can be shown by drawing line or
outline which gradually deviates from being straight for some or all of its length in the graph.
6. Slopes
Slopes show how fast or at what rate, the dependant variable is changing in response to a change in the independent
variable.
THANK YOU

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