This document provides an overview of key economic concepts for business analysis including: 1. It defines business economics as the integration of economic theory and business practice to facilitate decision making. 2. It outlines several economic concepts and their application to common business decisions regarding areas like production, costs, pricing, investment, and profit determination. 3. It explains foundational concepts in economic analysis like opportunity cost, marginalism, and marginal analysis which are important for understanding how businesses and individuals make choices.

1. MAT.K.M.PATEL
SR.COLLEGE OF COMM. &
SCI.
SUBJECT- BUSINESS ECONOMICS I
CLASS-FYBAF/BBI/BMS/BCOM-SEM I
PPT BY
DR. MRS. SNEHAL BHAGWAT (KAJVE)

2. � Introduction –
Economics studies how societies use there scare
resources to produce & distribute commodities to satisfy
unlimited wants.
Resources are- land, Labour, capital & enterprise
Resources are scare & have alternative uses so there
must maximum utilization of resources.
Modern economics is divided into 2 – micro & macro
Module 1-chap 1- Introduction to
Business Economics

3. � According to Mc Nair and Meriam, “Business
economic consists of the use of economic modes
of thought to analyse business situations.”
� Siegel man has defined managerial economic (or
business economic) as “the integration of
economic theory with business practice for the
purpose of facilitating decision-making and
forward planning by management.”
Defination

6. Economic concept Economic decision
1. Demand analysis Product, pricing, innovation &
marketing
2. Production & cost analysis Input –output analysis, use of
technology, productivity
improvement, recycling wastages
3. Market structure analysis Price-output decision, marketing
,diversification, market expansion,
mergers & take overs
4. Project appraisals Investment decision
5. Firm’s behavior analysis Profit determination, sales & market
share targets, stakeholders interest
6. Risk & uncertainty analysis Economics forecasting & planning
Relationship between economics concepts
& Business decisions

7. � OPPORTUNITY COST
� MARGINALISM & INCREMENTALISM
� MARGINAL ANALYSIS
BASIC CONCEPTS FOR BUSINESS
ECONOMIC ANALYSIS

9. � Sometimes opportunity cost is calculated in
money but sometimes it is not.
� This concept is very important in economic
analysis to understand how choices are made by
households, firms & govt.
Contd..

10. � Marginalism is the base of economic decision
making
� Decisions regarding the use of resources have to
be made at the margin. (called as Marginalism)
� Marginal means additional or extra.
� Business units are constantly taking decisions at
the margin.
� There are changes in situation due to dependent
& independent variable
� Thus MC= TC / Q, MR= TR/ Q
Marginalism & Incrementalism

11. � To increase production / additional units ,
Incrementalism concept is used
� Incremental concepts involve estimation of impact
of decision .
� E.g. open a branch in a another city – decision
regarding incremental cost & incremental revenue
is to be taken.
INCREMENTALISM

12. Changes in total Marginal
Total values are increasing Value will be Positive
Total values are declining Negative
Total values rise at a increasing rate Rise
Total values rise at diminishing rate Fall
Relationship between Total,
Average, Marginal

13. � Average values change when additions are at
margin.
� Marginal is greater than average, average will rise
� Marginal is equal than average, average will
remain constant
� Marginal is less than average, average will fall
Marginal & Average

14. Units of
output sold
(Q)
Price per unit
(p)
TR=P*Q AR=TR/Q MR=TR n- TR
(n-1 )
1 10 10 10 -
2 10 20 10 20-10=10
3 10 30 10 30-20=10
4 10 40 10 10(40-30)
5 10 50 10 10
6 10 60 10 10
7 10 70 10 10
8 10 80 10 10
9 10 90 10 10
10 10 100 10 10
Relationship between TR,AR & MR
under perfect competition

15. � Since price is constant, TR increases at constant
rate
� P=AR=MR
Contd…

16. Units of
output sold
(Q)
Price per unit
(p)
TR=P*Q AR=TR/Q MR=TR n- TR
(n-1 )
1 10 10 10 -
2 9 18 9 18-10=8
3 8 24 8 24-18=6
4 7 28 7 4
5 6 30 6 2
6 5 30 5 0
7 4 28 4 -2
8 3 24 3 -4
Relationship between TR,AR & MR
under Imperfect competition

17. � With decline in prices output sold increases
� TR initially rise then decline
� Changes in MR reflects the changes in TR. When
TR rises at diminishing rate, MR declines but its
positive. When TR is maximum & constant, MR is
zero. When TR declines MR becomes negative.
� AR is not equal to MR.
Contd…

19. KEY TAKEAWAYS
� Marginal analysis is an examination of the additional
benefits of an activity compared to the additional costs
incurred by that same activity. Marginal refers to the focus
on the cost or benefit of the next unit or individual, for
example, the cost to produce one more widget or the profit
earned by adding one more worker.
� Companies use marginal analysis as a decision-making
tool to help them maximize their potential profits.
� When a manufacturer wishes to expand its operations,
either by adding new product lines or increasing the
volume of goods produced from the current product line, a
marginal analysis of the costs and benefits is necessary.
MARGINAL ANALYSIS

20. � VARIABLES
� Variables play an important role in economic theories
and models. A variable is a magnitude of interest can be
defined and measured. In other words a variable is
something whose magnitude can change. It assumes
different values at different times or places. Variables
that are used in economics are income, expenditure,
saving, interest, profit, investment, consumption,
imports, exports, cost and so on. It is represented by a
symbol.
� Variables can be endogenous and exogenous. An
endogenous variable is a variable that is explained
within a theory. An exogenous variable influences
endogenous variables, but the exogenous variable itself
is determined by factors outside the theory.
FUNCTIONAL RELATIONS & TOOLS
FOR ECONOMIC ANALYSIS

21. � FUNCTION
� A 'function' explains the relationship between two or more
economic variables. A simple technical term is used to
analyze and symbolizes a relationship between variables. It is
called a function. It indicates how the value of dependent
variable depends on the value of independent or other
variables. It also explains how the value of one variable can
be found by specifying the value of other variable.
� For instance, economist generally links demand for good
depends upon its price. It is expressed as
� D = f (P). Where D = Demand, P = Price and f = Functional
relationship.
� Functions are classifieds into two type namely explicit
function and implicit function. Explicit function is one in which
the value of one variable depends on the other in a definite
form. For instance, the relationships between demand and
price Implicit function is one in which the variables are
interdependent.

22. � EQUATIONS
� Economic theory is a verbal expression of the functional relationships
between economic variables. When the verbal expressions are
transformed into algebraic form we get Equations. The term equation
is a statement of equality of two expressions or variables. The two
expressions of an equation are called the sides of the equation.
Equations are used to calculate the value of an unknown variable. An
equation specifies the relationship between the dependent and
independent variables. Each equation is a concise statement of a
particular relation.
� For example, the functional relationship between consumption (C) and
income (Y) can take different forms.The most simple equation; C = a
(Y) states that consumption (C) is related to income (Y). It says
nothing about the form that this relation takes.
� Here ‘a’ is constant and it has a value greater than zero but less than
one (0<a<1). Thus the equation shows that C is a constant proportion
of income. For instance, if ‘a’ is 1/2then the consumer would always
spend 50% of the income on consumption. The equation shows that if
income is zero, consumption will also be zero.
� C = a + b Y is yet another form of consumption function. Here value of
a is positive and b is 0<b<1.

23. � GRAPHS AND DIAGRAMS
� A graph or a diagram presents the relationship
between two or more sets of data or variables that are
related to one another. Graph is most commonly used
tool in modern economics. Graph depicts the
functional relationship between two or more economic
variables. The use of graph provides a better
understanding of the economic generalizations. Graph
presents a visual picture of an abstract idea. Also it is
useful for accuracy and precision.

24. � LINES AND CURVES
� The functional relationship between the variables
may be linear or non-linear. A line or a curve is
nothing but the locus of various points. A line
depicts the relationship between the variables. For
example, the relationship between consumption
and income as shown in the following diagram:

25. � SLOPE
� Slope is an important term in modern economic
analysis. The slope indicates change in one variable
due to a change in other variable. Slope is defined as
the amount of change in the variable measured on the
vertical or Y axis per unit change in the variable
measured on the horizontal or X axis. It is expressed
as ∆Y/∆X, where delta (∆) stands for a change in the
variable. The slope of a curve is an exact numerical
measure of the relationship between the change in the
variable Y to change the variable X.
� Slope is also popularly termed as ‘the rise over the
run’. Here rise is the vertical distance while run is the
horizontal distance. The measurement of slope can be
shown as follows:

27. �ANY DOUBTS
�THANK YOU