In today’s economic conditions in which the markets being far from full competitive state resulted the firms functioning in this market to become more or less a price-maker. For this reason, one of the ways for the firms that aim to increase the total income thus the total profit can use is, to implement different pricing for consumers with different specialties instead of applying the same pricing for all the consumer groups. Because the consumers having different income levels, taste and choice cause them to have a desire to pay different price for the product in question. One of the pricing strategies foresees different pricing for different consumer groups is price discrimination. The implementation of price discrimination will bring the firm that aims to maximize the profit in an advantageous position in the market. This advantage, generated from the desire of consumers that have different taste and income who 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.
Preventing Panic-Buying During Crisis Times
Panic-buying is a relatively common behavioral response to a crisis that people can exhibit in situations that they perceive to be dangerous and unpredictable. This behavior was previously observed in the wake of major natural disasters, such as earthquakes and hurricanes. Several factors can account for an increase in stockpiling and panic-buying behaviors. Access to excessive amounts of information during a crisis can result in a cognitive overload, which, in turn, leads to irrational behavioral patterns. Information overload can result in health anxiety, which prompts self-isolation and the tendency to make illogical purchases. The fear of the unknown causes coping behavior in the form of panic-buying and stockpiling. Therefore, it leads to the conclusion that panic-buying can emerge as a form of stress response in certain individuals. Peer pressure can contribute to irrational decisions in time of crisis as well. Panic-buying is defined as herd behavior, in which an individual Continue reading
Gaps between Theory of the Firm and Managerial Economics
The theory of the firm is a body of theory, which contains certain assumptions, theorems and conclusions. Theory of the firm states that firms (corporations) exist and make decisions in order to maximize profits. These theorems deal with the way in which businessmen make decisions about pricing, and production under prescribed market conditions. It is concerned with the study of the optimization process. For optimality to exist profit must be maximized and this can occur only when marginal cost equals marginal revenue. Thus, the optimum position of the firm is that which maximizes net revenue. Managerial economics, on the other hand, aims at developing a managerial theory of the firm and for the purpose it takes the help of economic theory of the firm. However, there are certain difficulties in using economic theory as an aid to the study of decision-making at the level of the firm. This is because Continue reading
Benefits of Cost Volume Profit Analysis
Every organization needs to calculate future revenues in order to help the managers carry out their operations effectively. Cost volume is the approach used for this purpose. Cost Volume Profit analysis or CVP analysis helps in identifying the operating activity levels with a purpose to avoid any kind of losses and achieve profits. Moreover, it also helps the companies to plan their future operations and see whether their organizational performance is going on the right track or not. While conducting a business, the companies also have to face various risks and in order to counter those risks, CVP analysis is an effective tool. Cost volume profit analysis can also help the organizations in calculating the breakeven point which is the point at which the profits become equal to zero. This can be done by finding the break even volume and then using it to make graphical representations. The break even Continue reading
Cashless Economy – The Road Towards a Cashless World
A cashless economy is a system where payments are made by electronic means rather than using cash or check to pay for goods or services. In an economy that is “cashless”, a person would pay with plastic methods like credit cards, debit cards, or smart cards. This type of transaction electronically moves money from one account to another rather than using the traditional forms of exchanging printed currency or checks. Woodfords Model of Cashless Economy There has been much debate over Woodford’s model of a cashless economy by many experts in the field of economics. Most experts believe that although some of the ideas brought forth make sense, the model is still incomplete because, in real-world economics, central banks can affect nominal interest rates. In Woodford’s model, he assumes that this does not relate to the real-world economy. Woodford’s argument is that banks have committed themselves to straightforward objectives to Continue reading
Theories of Profit in Economics
In economics, profit is called pure profit, which may be defined as a residual left after all contractual costs have been met, including the transfer costs of management insurable risks, depreciation and payment to shareholders, sufficient to maintain investment at its current level. Theories of Profit in Managerial Economics There are various theories of profit in economics, given by several economists, which are as follows: 1. Walker’s Theory of Profit as Rent of Ability This theory is pounded by F.A. Walker. According to Walker, “Profit is the rent of exceptional abilities that an entrepreneur may possess over others”. Rent is the difference between the yields of the least and the most efficient entrepreneurs. In formulating this theory, Walker assumed a state of perfect completion in which all firms are presumed to possess equal managerial ability each firm receives only the wages which in Walker view forms no part of pure Continue reading