Therefore, profit cannot be explained only as a reward for risk-bearing. Some of the entrepreneurs may be more efficient and some may be less. Scope of Managerial Economics Managerial economics has emerged as a new branch of knowledge and Managerial economics is currently undergoing development. Forecasting is the fundamental activity which consumes most of the time of the managerial economist. Establishing Job Responsibilities: Often job responsibilities are too imprecise to provide the information on which performance standards can be established and then judged. Thus reserve is an appropriation of profits.
Criticisms: In the labour exploitation theory of profit, the role of labour in the creation of surplus value and the subject of labour exploitation have been rightly emphasised. The managers of these firms must make judgements about the disposition of their resources and decide which priorities among the various competing claims they have upon them. It is otherwise known as proportional or equal installments method. Aims of Profit Policy: The firm seeks to achieve many objectives and profit making is the main objective but it is not the only objective. For instance, a person chooses to forgo his present lucrative job which offers him Rs. Sales Goal: It is considered as very important from the point of view of stability and survival of the firm. Demand for fruits and vegetables during their peak seasons is considerably less price sensitive, and correspondingly higher markups reflect this lower price elasticity of demand.
These are largely linearizing and simplifying assumptions, which are frequently presumed in elementary discussions of costs and profits. It is a systematic search for information. The nature of the assumptions and benefits, 3. After investing capital in a particular business, the entrepreneur has to wait for a long time before he can know if his selection of the field of business has been appropriate—this long wait is a form of risk-bearing. In fact, most business concerns like to earn a target rate of return on their investment. In short, the following are the distinctive features of profit as a factor reward: i It is not a predetermined contractual payment. If an innovation proves successful, that is, if it achieves its aim of either reducing the cost of production or increasing the demand for a product, it will give rise to profits.
The validity of the method is that the total cost of the capital is charged as depreciation once and for all. Money actually has time value. Salesmen have to be recruited, trained, directed, motivated and supervised. That is the anticipated work you do. But managerial theory studies only about individual firm. Scientific method alone can bring about confidence in the validity of conclusions.
The amount of annual depreciation is calculated by dividing the initial costs of the assets by the estimated life in years, assuming that there is no scrap value. Second, development-activities that can be used to give positive help to other major functions such as the use of the computer, management accounting development, management services, various personnel services, etc. Demand estimation is an integral part of decision making, an assessment of future sales helps in strengthening the market position and maximizing profit. So it is considered to be an ideal combination of art and science. Conclusion It is clear from the appropriate explanation that due to the theory of managerial economics, it is a part of. Knight has called these risks the uncertainties.
To analyse the impact of the organisational structure in the working of business enterprises, it is widely used by the managerial economist. Profit planning is largely concerned with how the gap can be closed. However, in the real world, we always see that the entrepreneurs can supply their services to many alternative areas and from the point of view of a particular business, supply of entrepreneurial services is not completely fixed—the supply can increase if the reward increases. In the warehouse, allied marketing functions such as grading, standardisation, blending, mixing and packing are performed. Computer is not only used for scientific or mathematical applications, it may also be used for some business applications, document generations and graphical solutions.
According to Hawley, an entrepreneur has to assume risk to earn more and more profit. Marginal revenue equals zero when the marginal revenue curve has reached its maximum value. The more his efficiency, the more he would be able to earn as pure profit. It implies a house for wares. We have to remember here the distinction between a dynamic society and a static society.
Innovation Theory of Profit: The innovation theory of profit was developed by Prof. The deterioration may be due to abrasion, shock, vibration, impact and so on. In case of absence of risks, an entrepreneur would cease to be an entrepreneur and would not receive any profit. The linear programming techniques, which is mathematical, is used by firms to maximize or minimize their objective function. These decisions can be delegated to the organisational members so that decisions could be implemented with their support.
Gross Profit and Net Profit : In ordinary parlance, profit actually means gross profit. The various aspects outlined above represent the major uncertainties, which a business firm has to consider viz. In such a society, everything goes on according to routine and everyone has a prior information of what will happen and when. It will be seen from Fig. If a firm makes sufficient profits, it can give good dividends and attractive salaries, etc. Dynamic Theory of Profit 6.
There are different methods for setting advertising budget: Percentage of Sales Approach, All You can Afford Approach, Competitive Parity Approach, Objective and Task Approach and Return on Investment Approach. Under this method, instead of counting the life of the assets in years, it is estimated in terms of working hours. As the productivity of labour increases, the surplus value created by labour also increases for the rate of wage of the workers generally does not increase, or, increases at a much smaller rate. The theory of games holds out the hope of solving certain problems concerning oligopolistic interminacy. Which prove to be very helpful to you. These alternative profit policies are listed below: Prof. For example, sampling is very useful in data collection.