R.HARIHARAN AP/EEE. Engineering is the conscious application of science to the problem of economic...

MG 2452-EEFAUNIT-I -

INTRODUCTIONR.HARIHARAN

AP/EEE

Engineering is the conscious application of science to the problem of economic production.

Economics is the science of making decision in the presence of scarced resources.

Accounting is the art of recording, classifying and summarizing in a significant manner and in monetory terms the transactions and events which are financial in nature.

Financial accounting involves preparation of trial balance, profit and loss account and balance sheet. This helps in calculating the profit earned or losses incurred during a particular period.

WHAT IS EEFA?

Managerial economics in the form of engineering economics is a valuable tool to analyze business situations a firm may be in.

It is the study of directing resources in a way that it most efficiently achieves the managerial goals.

It is also the application of the tools of economic analysis in decision making in actual business situations.

INTRODUCTION

Macro Economic Condition:◦ This is the economic environment in which the firm

operates.◦ The nature of the environment is broad and almost

always decisions of the firm are made within this broad frame work. Economy in which firm operates is predominantly a

free enterprise economy Present day economy – rapid technological and

economic changes Government intervening in the economic affairs has

increased in recent times and is likely to go up further.

NATURE OF ENGG.ECONOMICS

Micro Economic Condition:◦ It deals with the problems of an individual firm,

industry or consumer.◦ It helps in dealing the issues like allocating

resources, to use it efficiently.◦ Some tools are : elasticity of demand, marginal

cost, economics of scale, opportunity cost, market structure.

Contd…

Objectives of a business firm Demand analysis and forecasting Cost analysis Production management Supply analysis Pricing decisions, policies and practices Profit management Capital budgeting and investment decisions Decision theory under uncertainty competition

SCOPE OF MANAGERIAL ECONOMICS

Managerial economics and operation research

Managerial economics and statistics Managerial economics and mathematics Managerial economics and economics Managerial economics and accounting.

ME WITH OTHER DISCIPLINES

MANAGERIAL DECISION MAKING

Evaluationand

Feedback

Diagnosisand Analysis

of Causes

Recognition ofDecision

Requirement

Development ofAlternatives

Selection ofDesired

Alternative

Implementationof Chosen

AlternativeDecision-MakingProcess

Problem Formulation Decision Making without Probabilities Decision Making with Probabilities Risk Analysis and Sensitivity Analysis Decision Analysis with Sample Information Computing Branch Probabilities

DECISION ANALYSIS

TYPES OF FIRMSThe economy can be divided into two sectors:

The Private Sector

The Public Sector

The Private Sector Private individuals and firms that are owned

by private individuals Firms in the private sector include:

◦ Sole Traders◦ Private Limited Companies (Ltd)◦ Partnerships◦ Public Limited Companies (PLC)

The Public Sector Made up of central government,

local government, and businesses that are owned by government

In the last twenty years the number of government-owned firms in the UK has shrunk massively

Now, very few examples remain: for instance, the Royal Mail

Private Sector FirmsOne of the key differences is between: Sole traders and partnerships

whose liability is unlimited

And

Private Limited and Public Limited Companies, who have ‘limited liability’

Other Business Types Co-operatives are owned by their staff, who

are ‘members’ of the firm Profits are shared

amongst the members Losses too must be shared

Franchises Many businesses today

are franchises A business idea is licensed

to a franchisee The owners of the brand receive

a license fee The franchisee gains the right

to use the business brand

Not For Profit Businesses Many charity-based business organisations

are run as ‘not for profit’ operations They typically receive donations

or funds from groups or government Any financial surplus is ploughed back into

the business The organisation does not aim

to generate profits