Although, most modern firms make several products, Economic Theory has been developed on the premise that each firm produces only one product. The reasons for such inadequate premises are found partly in the historical origins of theory and partly in the simplicity of theoretical analysis when it is confined to production of just one single product. In many manufacturing enterprises two or more different products emerge from common production process and common raw-material used. Production of multiple product has almost become the rule. When two or more different products emerge from a single common production process and a single raw material, they get identified as separate products only at the end of common processing which is called the ‘Split of Point’. The costs that that have been incurred up-to the split of point are common costs. The common costs cannot be traced to the separate products. Some common costs are Continue reading
Managerial Economics
Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.
Pure Competition
In pure competition, the firm has to accept the given market price. At this given price, it can sell all the products, which it desires but at any higher price, it cannot sell anything. If the market price is below its cost, it has to either take the loss or withdraw from the market. As a result, any single firm in a purely competitive situation has to adjust its production and sales policies to the given market price. However, the market prices arc determined through the mutual consent of all the individual competitive buyers and sellers together. But any individual firm has no control over the price. Since a purely competitive seller has no control over the price at which he sells, his average marginal revenue schedule is infinitely elastic. In perfect competition, marginal revenue is equal to the average revenue, because every unit is sold at the same market Continue reading
Recommendations of Narasimham Committee Report (1991)
The Narasimham committee (1991) assumed that the financial resources of the commercial banks from the general public and were by the banks in trust and that the bank funds were to be deployed for maximum benefit of the depositors. This assumption automatically implied that even the government had no business to endanger the solvency, health and efficiency of the nationalized banks under the pretext of using banks funds for social banking, poverty eradication, etc. Accordingly, the Narasimham committee aimed at achieving three major changes in the banking sector in India; Ensuring a degree of operational flexibility. Internal autonomy for the banks in their decision making process. Greater degree of professionalism in banking operations. Towards this end, recommendations of Narasimham committee covered such subjects as directed investments, directed credit programmes, structural of rate of interest, structural reorganization of the Indian banking system, and organization, methods and procedures of banks in India. Continue reading
Single Global Currency – Concept, Advantages and Disadvantages
At the beginning of World War I, this standard ceased to exist and in 1920 countries permitted greater exchange rate flexibility, which however did not last long and after the end of the World War II the Bretton Woods system has been implemented. This standard has been created as a result of numerous meetings between the World War II winning states with the final conference taking place at the Hotel in Bretton Woods, New Hampshire. The standard took the name of this last conference’s venue. In August 15, 1971 Richard Nixon in his speech announced that the price of dollar will be no longer fixed against gold. This has put an end to the Bretton Woods system and has set-off a new era in international monetary system. The main feature of this new system is that it is neither a pure gold standard nor a pure exchange rate float, but Continue reading
Foreign Exchange Exposure – Meaning and Types
Meaning of Foreign Exchange Exposure Foreign exchange risk is related to the variability of the domestic currency values of assets, liabilities or operating income due to unanticipated changes in exchange rates, whereas foreign exchange exposure is what is at risk. Foreign currency exposures and the attendant risk arise whenever a company has an income or expenditure or an asset or liability in a currency other than that of the balance sheet currency. Indeed exposures can arise even for companies with no income, expenditure, asset or liability in a currency different from the balance sheet currency. When there is a condition prevalent where the exchange rates become extremely volatile the exchange rate movements destabilize the cash flows of a business significantly. Such destabilization of cash flows that affects the profitability of the business is the risk from foreign currency exposures. Classification of Exposures Financial economists distinguish between three types of currency Continue reading
Effects of Black Money on Economy
Black money is generated due to the following reasons: The people do not pay their taxes. Even if they pay taxes, they are not in correct proportions to their incomes. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. These firms are able to make clever usage of the income tax rules and hence, they save taxes. This tax evasion leads to the generation of black money. The black money is earned by gifts, hawala transactions and illegal foreign exchange deals. These deals are not scrutinized by the government simply because these are without any documentary evidences. The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. The sale and purchase of assets also lead to the generation of black money. The value of the property is shown to be very low in the Continue reading