Important Questions and Answers: Engineering Economics and Financial Accounting

1. Define Managerial Economics

By combining the basic definition of the two terms “Manager” and “Economics” you get the definition of “managerial economics” . “Managerial Economics” is the study of directing resources in a way that it most efficiently achieves the managerial goals.

Managerial Economics is also the application of the tools of economics analysis in decision making in actual business situations.

2. What is meant by Micro economic analysis ?

Micro economic analysis deals with the problems of an individual firm, industry or consumer etc. It helps in dealing with issues which go on within the firm such as putting the resources available with the firm to its best use, allocating resources within various activities of the firm to its best use, allocating resources within various activities of the firm and also deals with being technically and economically efficient.

3. What is meant by Prescriptive approach ?

Prescriptive or normative approach tells “How things ought to be done”.  

4. What is meant by descriptive approach ?

Descriptive approach tells “how things are done”.

5. Scope of Managerial Economics:

The following aspects constitute the scope of managerial economics:

1.     Objectives of a business firm

2.     Demand analysis and forecasting

3.     Cost analysis

4.     Production management

5.     Supply analysis

6.     Pricing decisions, policies and practices

7.     Profit management

8.     Capital budgeting and investment decisions

9.     Decision theory under uncertainty

10.Competition

6.Give the Objectives of a business firm

The objectives of a business firm may be varied. Apart from generating profits a firm has many other objectives like being a market leader , being a cost leader, achieving superior efficiency, achieving superior quality, achieving superior customer responsiveness etc.

7.What is meant by Supply Analysis?

Supply analysis deals with the various aspects of supply of a commodity. Certain important aspects of supply analysis are supply schedule, curves and function, elasticity of supply, law of supply and its limitations and factors influencing supply.

8.What is meant by Capital Budgeting ?

Capital budget is the planning of expenditure on assets.

9.Use of Engineering Economics:

Engineering economics accomplishes several objectives. It presents the aspects of traditional economics that are relevant for business and engineering decision making in real life.

10.Define Logistics:

It is the movement of goods from one place to the other.

11.Define Inbound Logistics:

It is the movement of raw materials to the factory premises.

12.Define Outbound logistics:

It is the movement of finished goods to wholesaler or retail outlets and to the final consumers.

13. Define Statistics:

Statistics provide the basis for empirical testing of theory. Generalizations or theory cannot be accepted for practice unless these theories are checked against the data from the reality. This way, theories become more practical and useful in real life business situation.

14. Define Economics and define the divisions of Economics:

Economics has two divisions namely micro economics and macro economics. Micro economics is the branch of economics where the unit of study is an individual or a firm while macro economics is branch of economics where the unit of study is aggregative in character and considers the entire economy.

15. Define Accounting:

Accounting can be defined as the recording of financial operations of an organization. Managerial decisions on profits and sales etc. derive input largely from the accounting statement of a firm.

16. Define Managerial Economics and Mathematics:

Many of the theories in mathematics will find use in economics. Concepts such as calculus, vectors, logarithms and exponentials, determinants and matrix, algebra etc are some to name a few. Managerial economics is metrical in character. It estimates various economic relationships prediction relevant economic quantities and uses them in decision making and planning for the future. So mathematics becomes an important tool in managerial economics.

17. Define Operations research:

Operations research was developed as science during the Second World War to solve the complex operations problems of planning and resource allocation in defence and in basic industries which specifically supplied military equipments. These theories find high usage in various field of management to solve problems pertaining to logistics, both inbound and outbound and also the movement of material within the factory premises etc.

18. Define a competitor.

The competitors of the firm are also likely to react or even pro-act to any decisions made by the firm. Competitors always try to navigate the competitive advantage gained by the firm. Thus managers will have to make wise investments in projects that will be hard to be imitated by the competition.

19.Define Decision theory under uncertainty:

Most of the business decisions taken by the managers are done under uncertainty. Uncertainties pertaining to demand, cost, price, profit, capital etc prevail most of the time when decisions are made. This makes the whole decision making process difficult and complex. The tools used in economic analysis have been modified and refined so as to take into account the uncertainty and thus help decisions making in logical and scientific manner.

20.Define Profit Management:

All business firms are motivated and committed to produce profits. Profits are one of the tangible yardsticks to measure the performance of the firm and the managers concerned. It also signifies the health of the firm. Profits are influenced by various factors such as cost of production, revenues and other factors both internal and external to the firm. Profits are hard to predict.

21.Define Pricing Decisions

A firm’s profitability and success greatly depend on the pricing decisions and the pricing policies of the firm. The patronization of the firm’s products by the customers, the competition faced by the product along with the profits of the firm, largely depends on the price of the product. Pricing also depends on the environment in which the firm operates, competitions, customers etc.

22.Define Production Management:

When a manager organizes and plans the firm’s production functions i.e. when he tries to convert the raw materials to finished product, he faces a number of economic problems. The study of ‘production function’ describes the input output relationship.

23.Define Cost Analysis:

One way to earn higher profits is by controlling the cost involved in producing the product. Study of cost is necessary for making efficient and effective managerial decisions. If a detailed cost analysis and estimation is done, the firm can move upon effective profit management and sound pricing practices.

24.What are the Macro economic Conditions:

(a)  The economy in which firms operate is predominantly a free enterprise economy.

(b)  The present day economy is undergoing rapid technological and economic changes and,

(c)   The government intervening in the economic affairs has increased in the recent times and is likely to go up further.

25. What are the Common points in Managerial Economics ?

1.Managerial economics deals with the decision making by managers, executives and engineers of economic nature.

2.Managerial economics is goal oriented.

3.Managerial Economics is both conceptual and metrical. 4.Managerial economics is pragmatic.

PART - B

1.     Discuss the nature & scope of managerial economics.

Nature of managerial economics:

1. Applied economics theory

^Ø    Application of macro &micro economics

^Ø    Decision making

^Ø    Forward planning

2. Pragmatic

^Ø    Making decisions &actions

^Ø    Improve the decision making

3. Multidisciplinary

^Ø    Statistics

^Ø    Management

^Ø    Operational research mathematics

^Ø    Accounting psychology

4. Descriptive &prescriptive

(Cause &effect relationship)

Predict the outcome

5. Appliedscience

^Ø   Formulation of theories

Cause &effect relationship

Scope of managerial economics.

^Ø    Allocation of resources

^Ø    To use micro economic concepts

^Ø    Effective decision making

^Ø    Fundamental questions

^Ø    What to produce?

^Ø    How to produce

^Ø    For when to produce?

^Ø    Production &cost analyst

^Ø    Market structure

^Ø    Profit & non-profit organization

2.     Briefly explain about firm& Discuss about the types of firm

Firms:

It is a unit that produces a goods (or) services for a sale.

Types of firms

Private sector (owned by private people)

1. Sole proprietorship (single owner)

2. Partnership (more than one people)

3. Joint stock (companies act)

4. Cooperatives. (Voluntary organization with non-profit motives)

Public sector (owned by public people)

^Ø    Corporate board(government invests in amount)

^Ø    Corporate company( govt controls economic activities)

^Ø    Department(specific purpose related to social utility)

Joint sector (combination of private & public sector)

3.                       Discuss about the disciplines of managerial economics.

Managerial economics & Economics

^Ø    Managerial economics & theory of Decision making

^Ø    Managerial economics & Operations research

^Ø    Managerial economics& Statistics

^Ø    Managerial economics &Accounting

^Ø    Managerial economics & Computer science

^Ø    Managerial economics & Sociology

4. Discuss about various subjects involved in managerial economics.

^Ø        Managerial economics & Economics

^Ø    Managerial economics & theory of Decision-making

^Ø    Managerial economics & Operations research

^Ø    Managerial economics& Statistics

^Ø    Managerial economics &Accounting

^Ø    Managerial economics & Computer science

^Ø    Managerial economics &Sociology.

5.     Briefly explain about importance of Managerial Economics

^Ø    Allocation of resources

^Ø    To use micro economic concepts

^Ø    Effective decision making

^Ø    Fundamental questions

^Ø    What to produce?

^Ø    How to produce

^Ø    For when to produce?

^Ø    Production &cost analyst

^Ø    Market structure & Profit & non -profit organization

6.     i. Briefly explain about the types of decision making.

^§    Major&supplementary decisions

^§    Organizational &personal decisions

^§    Basic&routine decisions

^§    Programmed & non programmed decision

^§    Group&individual decision

^§    Policy&operating decision

ii. List out the steps involved in decision making .