amtreuf.docx

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RIFTY VALLEY UNIVERSITY
LAGA XAFO CAMPUS
MASTERS OF BUSINESS ADMINISTRATION
COURSE TITLE : MANAGERIAL ECONOMICS
INDIVIDUAL ASSIGNMENT
NO. NAME ID NO
1. AMETEREUF MOHAMMEDSUALIH OUMER
Submission date : 12/06/2015
SUBMITTED TO:- Ms. Asnakech (phD candidate)
Feb 2023
L/XAFO, OROMIA,ETHIOPIA

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1. An economic theory is a set of ideas and principles that outline how different economies
function. Depending on their particular role, an economist may employ theories for different
purposes. For instance, some theories aim to describe particular economic phenomena, such
as inflation or supply and demand, and why they occur. Other economic theories may
provide a framework of thought that allows economists to analyze, interpret and predict the
behavior of financial markets, industries and governments. Often, though, economists apply
theories to the issues or occurrences they observe to glean useful insight, provide
explanations and generate potential solutions to problems.
There's an extensive collection of theories available to professionals when analyzing
economic activity.
Supply and demand
Supply and demand is a theory in microeconomics that offers an economic model for
price determination. This theory states that the unit price for a good or service may vary
until it settles at a point of economic equilibrium, or when the quantity at which
consumers demand a good equals the quantity at which a consumer supplies it.
For example, as the supply of a good or service decreases and consumer demand persists,
the price of it may skyrocket—in this case, the demand is greater than the supply.
Classical economics
Classical economics is an area of thought established by early economists and political
thinkers Adam Smith, John Stuart Mill and others. The primary theory of classical
economics states that market economies are, by definition, self-regulating systems that
are ruled by the laws of production and exchange.
With this basis, Smith also introduced the invisible hand, a metaphorical concept and
justification for free markets that implies individuals acting within their own self-interests
generate social benefits and the public good.
Keynesian economics
Keynesian economics consists of multiple macroeconomic theories and models that offer
explanations for how aggregate demand—the entirety of an economy's spending—
impacts phenomena like economic output and inflation.
The central idea of Keynesian thought is that aggregate demand doesn't inherently equate
to the productive capacity of an economy, but rather that a variety of factors, both public

Rift valley university managerial economics individual assignment Page 2
and private, determine it. With this, Keynesian economical methods support a system in
which fluctuations in aggregate demand can lead to changes in employment and output,
but not prices.
Malthusian economics
Malthusian economics refers to the idea that, while population growth may be
exponential, the growth of food supply and the supply of other resources is linear. This
theory states that when a population grows over time and outpaces a society's ability to
produce resources, its standard of living may reduce and trigger a large depopulation
event. With this, Malthusian economics supports population control efforts to avoid
unchecked growth rates. Various schools of thought have largely discredited
Malthusianism as it relates to agricultural production, but discourse around
environmental degradation, resource depletion and scarcity persists.
Marxism
Marxism is a type of socioeconomic theory that interprets capitalism's impacts on an
economy's development, labor and productivity. This theory posits that a capitalist
society comprises two socioeconomic classes—the bourgeoisie, or the ruling class, and
the proletariat, or the working class. In Marxism, the bourgeoisie controls the means of
productions and the proletariat owns the labor that produces economic goods with value.
With this, the bourgeoisie's motivation lies in deriving the most work from the proletariat
while paying the least amount possible in wages, creating an exploitative economic
balance. Marxist economists argue that this inequality may lead to revolution.
Market socialism
Market socialism, often called liberal socialism, is a theory that proposes the creation of
an economic system that incorporates elements from both socialist planning and free
enterprise. In a market socialist system, capital is owned cooperatively, but market forces
define production and exchange rather than government oversight. Different market
socialist models direct the profit generated by socially owned firms toward varying
channels, such as employee remuneration, public financing or a social dividend.

2. Factor determining Market structure
The market structure consists of a number of firms that supply goods and services and the
consumers who buy these goods and services. This helps to determine the level of
production, consumption, and also competition. Depending on this, market structures are
divided into concentrated markets and competitive markets.
Market structure defines the set of characteristics that help us categorize firms depending on
certain features of the market.
These features include but are not limited to: the number of buyers and sellers, the nature of
the product, the level of barriers to entry and exit.
Number of buyers and sellers
The main determinant of the market structure is the number of firms in the market. The
number of buyers is also very important. Collectively, the number of buyers and sellers not
only determines the structure and level of competition in a market but also influences the
pricing and profit levels for the firms.
Barriers to entry and exit
Another feature that helps determine the type of market structure is the level of entry and
exit. The easier it is for firms to enter and exit the market, the higher the level of competition.
On the other hand, if the entry and exit are difficult, competition is much lower.
Perfect or imperfect information
The amount of information the buyers and sellers have in the markets also helps to determine
the market structure. Information here includes product knowledge, production knowledge,
prices, substitutes available, and the number of competitors for the sellers.
Nature of the product
What is the nature of a product? Are there any or close substitutes available for the product?
Are the goods and services easily available in the market and are they identical and uniform?

These are a few questions that we can ask to determine the nature of a product and therefore
the market structure.
Price levels
Another key to identifying the type of market structure is to observe the price levels. A firm
may be a price maker in one of the markets but a price taker in another. In some forms of
markets, firms may have no control over the price, though in others there might be a price
war.
The market structure spectrum
We can understand the spectrum of the market structure along a horizontal line between two
extremes starting with the perfectly competitive market and ending with the least competitive
or concentrated market: monopoly. In between these two market structures, and along a
continuum, we find Monopolistic Competition and Oligopoly. This would be the process
from left to right:
 There is a gradual increase in the market power of each firm.
 Barriers to entry increase.
 The number of firms in the market decreases.
 Firms’ control over the price level increases.
 The products become more and more differentiated.
 The level of information available decreases.
3. Any successful business owner will tell you that poor management of utility, such as water,
electricity, and gas is the reason most businesses fail. In fact, the CB Insights survey shows
that 18 percent of new businesses don’t make it past their first anniversary because of utility
cost issues. There are two problems with not managing your utility costs: You pay for what
you haven’t consumed because of unscrupulous utility providers and your overall costs
skyrocket. All these eat into your profit margins.
While you can manage your utility yourself, it becomes difficult when the business scales up.
That’s why it’s a good idea to hire a utility management company to do it for you:

Here are the main reasons to hire a utility management company to manage your utilities:
 They have extensive experience and expertise in utility management
Most utility management companies have extensive experience and expertise in doing utility
management work. In fact, they have certificates from local and federal government and
testimonials from happy customers to prove that. They can diagnose your utility system using the
latest technology and tell you the causes of your utility problems. They will then compile a
detailed report, along with the required corrective action plan to ensure the cost of your utility
bills remains below the required threshold.
According to the team at UMC Solutions “Unlike other types of bills, utility bills can be overly
complicated and can fluctuate from month to month. Left unchecked they can easily spiral out of
control and become an expense-blindspot for any businesses.”
 Saves you money
Most business owners think that managing utilities themselves is the best way to save money.
While this makes sense, the reality is that the tasks involved in utility management are so
complex that it can be overwhelming any business to do it themselves. The right utility
management company will evaluate the current condition of your utility system, present the
results, draw up and implement an improvement plan and ensure the situation doesn’t reoccur.
This will save you money that you would have wasted on in-house utility management personnel
who may not have a clue of how a utility system works, do a mediocre job that leads to the
reoccurrence of the problems.
 Saves you time
Time is a very important resource in today’s competitive business environment. Any minute you
waste means a competitor is closing the gap on you or surpassing you. Utility management is a
time-consuming and energy-draining task. It involves going through your utility data to pinpoint
problem areas, cultivating good relationships with utility suppliers to get the best deals, making

timely utility bills payments, and formulating an efficient utility management strategy. All these
can take a big chunk of your time. That’s why it’s a good idea to hire a utility management
company to do it for you and allow you to focus on other activities that have the potential to
bring greater profitability to your business.
 Help you know the market dynamics
The utility market trends change frequently. For example, energy costs drop periodically and
utility providers are required to respond in kind by lowering your energy costs. If you don’t keep
an eye out on the energy market trends, you might not be able to enjoy the low energy costs
because your utility provider may take advantage of your ignorance and not lower your utility
bills. The right utility management company will keep an eye out on the utility market trends and
tell you when energy costs subside. They will also follow up with the utility services providers to
ensure that it actually reflects on your monthly utility bills. The utility company will also tell you
the utility providers that are using the latest technology to ensure the efficient distribution and
management of utilities. The company will also keep you updated on the current and new energy
legislation to ensure you operate within the confines of the energy laws.
 Ensure prompt payment of utility bills
Late payment of utility bills can attract fines and add up your costs. On numerous occasions, late
payments occur because you were too busy to remember to pay the bills on time. Besides
tracking your utilities, a utility management company will ensure all your utility bills are paid on
time to prevent penalties or accumulation of bills, all of which add up your overall cost. When
businesses want to increase their profit margins, they have two realistic options: Cut costs or
increase sales. The latter is uncontrollable. That’s why most business owners slant towards
cutting costs. And when it comes to cutting costs, many business owners prefer to start with
utilities. While you can do it yourself, hiring a utility management company is advantageous
because it not only helps you cut utility costs, but manage them as well.
e.g Let's back this up for a second just to make sure you get the idea of utility. Suddenly, you
go from being in your office to being stranded on a deserted island. A genie appears and

offers you a choice. You can either have all the money in the world and never be rescued, or
a fully charged satellite phone and GPS beacon. Chances are you take the phone and beacon.
After all, that money doesn't do you any good if you can't spend it! That is the core concept
of utility - what is most useful to the organization. In the above example, using the new
manufacturing process had great utility because it upgraded efficiency.
4. Managerial economist is a person who manages business efficiently using various economic
theories and methodologies. He supports the management team in better decision making
through his analytical skills and specialized techniques.
A Managerial Economist is also termed as an economic advisor or business economist. He is
responsible for analyzing various internal and external environmental forces that influence the
functioning of business organizations. Managerial economist makes several successful business
forecasts and updates the management team regarding the economic trends from time to time.
Managerial Economist always remains in touch with all the latest economic developments and
environmental changes for informing the management. He has an efficient role in earning
reasonable profits on invested capital as it supplies all relevant information which helps in
making proper plans and strategies. Managerial economist has three important roles in every
business organization: Demand analysis and forecasting, capital management and profit
management.
Role and Responsibilities of Managerial Economist
Studies Business Environment
The managerial economist is responsible for analyzing the environment in which business
operates. Proper study of all external factors that affect the functioning of organization is must
for proper functioning. He studies various factors like growth of national income, competition
level, price trends, phase of the business cycle and economy and updates the management
regarding it from time to time.
Analyses Operations Of Business

He analyses the internal operation of business and helps management in making better decisions
in regard to internal workings. Managerial economist through his analytical and forecasting skills
provides advice to managers for formulating policies regarding internal operations of the
business.
Demand Forecasting And Estimation
Proper estimation and forecasting of future trends helps the business in achieving desired
profitability and growth. Managerial economist through proper study of all internal and external
forces makes successful forecasting of future uncertainties or trends.
Production Planning
Managerial economist is responsible for scheduling all production activities of business. He
evaluates the capital budgets of organizations and accordingly helps in deciding timing and
locating of various actions.
Economic Intelligence
He provides economic intelligence services by communicating all economic information to
management. Managerial economist keeps management always updated of all prevailing
economic trends so that they can confidently talk in seminars and conferences.
Performing Investment Analysis
A managerial economist analyzes various investment avenues and chooses the most appropriate
one. He studies and discovers new possible fields of business for earning better returns.
Focuses On Earning Reasonable Profit
He assists management in earning a reasonable rate of profit on capital employed in the business.
Managerial economist monitors activities of organizations to check whether all operations are
running efficiently as per the plans and policies.
Maintaining Better Relations
A managerial economist maintains better relations with all internal and external individuals
connected with the business. It is his duty to develop a peaceful and cooperative environment
within the organization and aims to reduce any opposition taking place.
5. Some of the basic concept of economics are as follows:

Economics Concept # 1. Value:
Ordinarily, the concept of value is related to the concept of utility. Utility is the want
satisfying quality of a thing when we use or consume it. Thus utility is the value-in-use of a
commodity. For instance, water quenches our thirst. When we use water to quench our thirst,
it is the value-in-use of water.
In economics, value means the power that goods and services have to exchange other goods
and services, i.e. value-in-exchange. If one pen can be exchanged for two pencils, then the
value of one pen is equal to two pencils. For a commodity to have value, it must possess the
following three characteristics.
1. Utility:
It should have utility. A rotten egg has no utility because it cannot be exchanged for
anything. It possesses no value-in-exchange.
2. Scarcity:
Mere utility does not create value unless it is scarce. A good or service is scarce (limited) in
relation to its demand. All economic goods like pen, book, etc. are scarce and have value.
But free goods like air do not possess value. Thus goods possessing the quality of scarcity
have value.
3. Transferability:
Besides the above two characteristics, a good should be transferable from one place to
another or from one person to another. Thus a commodity to have value-in-exchange must
possess the qualities of utility, scarcity and transferability.
Basic Concept of Economics # 2. Value and Price:
In common language, the terms ‘value’ and ‘price’ are used as synonyms (i.e. the same). But
in economics, the meaning of price is different from that of value. Price is value expressed in
terms of money. Value is expressed in terms of other goods. If one pen is equal to two

pencils and one pen can be had for Rs.10. Then the price of one pen is Rs.10 and the price of
one pencil is Rs.5.
Value is a relative concept in comparison to the concept of price. It means that there cannot
be a general rise or fall in values, but there can be a general rise or fall in prices. Suppose 1
pen = 2 pencils. If the value of pen increases it means that one pen can buy more pencils in
exchange
Let it be 1 pen= 4 pencils. It means that the value of pencils has fallen. So when the value of
one commodity raises that of the other good in exchange falls. Thus there cannot be a general
rise or fall in values. On the other hand, when prices of goods start rising or falling, they rise
or fall together. It is another thing that prices of some goods may rise or fall slowly or swiftly
than others. Thus there can be a general rise or fall in prices.
Basic Concept of Economics # 3. Wealth:
In common use, the term ‘wealth’ means money, property, gold, etc. But in economics it is
used to describe all things that have value. For a commodity to be called wealth, it must
prossess utility, scarcity and transferability. If it lacks even one quality, it cannot be termed
as wealth.
Forms of Wealth:
Wealth may be of the following types:
1. Individual Wealth:
Wealth owned by an individual is called private or individual wealth such as a car, house,
company, etc.
2. Social Wealth:
Goods which are owned by the society are called social or collective wealth, such as schools,
colleges, roads, canals, mines, forests, etc.
3. National or Real Wealth:
National wealth includes all individual and social wealth. It consists of material assets
possessed by the society. National wealth is real wealth.

4. International Wealth:
The United Nations Organisation and its various agencies like the World Bank, IMF, WHO,
etc. are international wealth because all countries contribute towards their operations.
5. Financial Wealth:
ADVERTISEMENTS:
Financial wealth is the holding of money, stocks, bonds, etc. by individuals in the society.
Financial wealth is excluded from national wealth. This is because money, stocks, bonds, etc.
which individuals hold as wealth are claims against one another.
Some differences:
Wealth is different from capital, income and money.
Wealth and Capital:
Goods which have value are termed as wealth. But capital is that part of wealth which is used
for further production of wealth. Furniture used in the home is wealth but given on rent is
capital. Thus all capital is wealth but all wealth is not capital.
Wealth and Income:
Wealth is a stock and income is a flow. Income is the earning from wealth. The shares of a
company are wealth but the dividend received on them is income.
Wealth and Money:
Money consists of coins and currency notes. Money is the liquid form of wealth. All money
is wealth but all wealth is not money.
Basic Concept of Economics # 4. Stocks and Flows:
Distinction may be made here between a stock variable and a flow variable. A stock variable
has no time dimension. Its value is ascertained at some point in time. A stock variable does
not involve the specification of any particular length of time. On the other hand, a flow
variable has a time dimension. It is related to a specified period of time

So national income is a flow and national wealth is a stock. Change in any variable which
can be measured over a period of time relates to a flow. In this sense, in ventories are stocks
but change in inventories in a flow.
A number of other examples of stocks and flows can also be given. Money is a stock but the
spending of money is flow. Government debt is stock. Saving and investment and operating
surplus during a year are flows but if they relate to the past year, they are stocks. But certain
variables are only in the form of flows such as NNP, NDP, value added, dividends, tax
payments, imports, exports, net foreign investment, social security benefits, wages and
salaries, etc.
Basic Concept of Economics # 5. Optimization:
Optimization means the most efficient use of resources subject to certain constraints it is the
choice from all possible uses of resources which gives the best results, it is the task of
maximisation or minimisation of an objective function it is a technique which is used by a
consumer and a producer as decision-maker.
A consumer wants to buy the best combination of a consumer good when his objective
function is to maximise his utility, given his fixed income as the constraints. Similarly, a
producer wants to produce the most suitable level of output to maximise his profit, given the
raw materials, capital, etc. as constraints.
As against this, a firm cans hence the objective of minimisation of its cost of production by
choosing the best combination of factors of production, given the manpower resources,
capital, etc. as constraints. Thus optimisation is the determination of the maximisation or
minimisation of an objective function.
6. What is Economies of Scale?
Economies of scale is a concept that is widely used in the study of economics and
explains the reductions in cost that a firm experiences as the scale of operations increase.
A company would have achieved economies of scale when the cost per unit reduces as a
result of an expansion in the firm’s operations. Cost of production entails two types of
costs; fixed costs and variable costs. Fixed costs remain the same, regardless of the

number of units produced such as the cost of property or equipment. Variable costs are
costs that change with the number of units produced, such as the cost of raw material and
labor cost, given that salaries are paid at a per hour or per unit basis. The total cost of a
product is made up of fixed and variable costs. A firm will achieve economies of scale
when the total cost per unit reduces as more units are produced. This is because, even
though the variable cost increases with each unit produced, the fixed cost per unit will
reduce as the fixed costs are now divided among a larger number of total products.
What is Returns to Scale?
Returns to scale is a concept related to economies of scale and refers to changes that are made to
a firm’s output depending on increases in the amount of inputs made. Returns to scale measures
the rate at which the output increases when inputs are increased. Types of returns to scale include
constant returns to scale, increasing returns to scale, and diminishing returns to scale. If the
output increases by the same rate at which inputs are increased, that is called constant returns to
scale. If the output increases at a higher rate than the rate at which inputs are increased, that is
called increasing returns to scale. If the output increases at a lower rate than the rate at which
inputs are increased, that is called decreasing returns to scale.
Economies of scope
Economies of scope is an efficiency-enhancing notion that promotes cost-saving from using
similar operations to simultaneously manufacture particular products instead of going for one at
a time. It occurs when the total cost of producing two or more output types is lower than making
every kind of output separately.
Economies of Scale vs Returns to Scale
Economies of scale and returns to scale are concepts related to each other even though they are
terms that cannot be used interchangeably. Returns to scale refers to changes in the levels of
output as inputs change, and economies of scale refers to changes in the costs per units as the
number of units are increased. A firm that just has increasing returns to scale may not have

economies of scale because even though output increased at a higher rate than the increases in
input, scarcity of resources may have resulted in higher raw material cost and, therefore, higher
per unit cost.
Economy of scale vs economy of scope
Economies of scale are applied in businesses for a longer period. It takes place when an
organization reaches a point where its production costs start to lower, and it happens in the cases
of bulk production. In contrast, economies of scope happen when an organization produces
multiple varieties of products, and as a result, its cost of production starts to reduce.
Both are concepts of economics. And they both are very useful to a business that wants to grow
and serve its customers better.
Both facilitate in reducing the cost of production for businesses
 Economies of scale are all about increasing the units of production. Economies of scope
are all about increasing the varieties of production.
 Economies of scale help a company look at the average cost per unit and gradually
increase the quantity until this cost reaches a minimum. Economies of scope are all about
utilizing the infrastructure to reduce the average cost per unit.
 Economies of scale concentrate on only one type of product. Economies of scope
concentrate on varieties of products.
 Economics of scale depends more on the production capacity of one product. Economics
of scope depends more on the company’s infrastructure to produce multiple products
under one head.
 Economics of scale is a relatively older concept. Economics of scope is a comparatively
newer concept.
7. The Ethiopian economy was hated by different factor such as political ,social and deases etc
are macroeconomic factor that hinder economy of Ethiopia.
The Ethiopian economic growth rate is likely to remain high despite large fluctuations in
agricultural production. Projections indicate, however, that Government's target of 7 %

growth for 2006 is around 2 percentage points too high. Higher growth rates are expected
if political polarization in Ethiopia is reduced. The rising inflation has been a source of
concern, but price increases now seem to be under control. The increase in oil prices and
the suspension of Direct Budget Support by donors are other factors straining the
Ethiopian economy. In this situation with scarce foreign exchange, the removal of petrol
subsidies seems warranted.
Furthermore, challenges for the Ethiopian poverty reduction strategy (PASDEP) are
discussed. The PASDEP clearly links growth strategies to poverty reduction, and the
poverty analysis in the document is coherent with the strategies outlined. However,
distributional issues seem to be overlooked and further analysis is needed to identify
which groups will benefit from the proposed policies and which groups will lag behind.

REFERENCE
1. M. Hirschey, J. L. Pappas and D. Whigham, Managerial Economics, London: Dryden Press,
1995.
2. R. A. Posner, ‘The social costs of monopoly and regulation’, Journal of Political Economy,
83 (1975): 807–827.
3. J. K. Galbraith, American Capitalism: The Concept of Countervailing Power, New York:
Houghton Mifflin, 1952.
4. J. Gray, False Dawn: The Delusions of Global Capitalism, London: Granta Books, 1999, p.
112.
5. R. Layard, ‘Clues to prosperity’, The Financial Times, 17 February 1997.6 Gray, False
Dawn, pp. 24–25.
6. http://www.cliffordchance.com/, ‘The Enterprise Act 2002: summary of Main competition
provisions, July 2003’.

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