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Concept of productivity and technology for Managerial Economics Mcom Delhi University

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Concept of productivity and technology for Managerial Economics Mcom Delhi University

Concept of productivity and technology for Managerial Economics Mcom Delhi University

Productivity describes various measures of the efficiency of production. A productivity measure is expressed as the ratio of output to inputs used in a production process, i.e. output per unit of input. Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real incomeimproves people’s ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and/or data availability.

Concept of productivity and technology for Managerial Economics Mcom Delhi University

Partial productivity

Productivity measures that use one class of inputs or factors, but not multiple factors, are called partial productivities.In practice, measurement in production means measures of partial productivity. Interpreted correctly, these components are indicative of productivity development, and approximate the efficiency with which inputs are used in an economy to produce goods and services. However, productivity is only measured partially – or approximately. In a way, the measurements are defective because they do not measure everything, but it is possible to interpret correctly the results of partial productivity and to benefit from them in practical situations. At the company level, typical partial productivity measures are such things as worker hours, materials or energy used per unit of production.

Before widespread use of computer networks, partial productivity was tracked in tabular form and with hand-drawn graphs. Tabulating machines for data processing began being widely used in the 1920s and 1930s and remained in use until mainframe computers became widespread in the late 1960s through the 1970s. By the late 1970s inexpensive computers allowed industrial operations to perform process control and track productivity. Today data collection is largely computerized and almost any variable can be viewed graphically in real time or retrieved for selected time periods.

Labor productivity

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In macroeconomics, a common partial productivity measure is labour productivity. Labour productivity is a revealing indicator of several economic indicators as it offers a dynamic measure of economic growth, competitiveness, and living standards within an economy. It is the measure of labour productivity (and all that this measure takes into account) which helps explain the principal economic foundations that are necessary for both economic growth and social development. In general labour productivity is equal to the ratio between a measure of output volume (gross domestic product or gross value added) and a measure of input use (the total number of hours worked or total employment).

Concept of productivity and technology for Managerial Economics Mcom Delhi University

Recommended Mcom Notes

M. Com. (Part-I)

M. Com. (Part-II)

Concept of productivity and technology for Managerial Economics Mcom Delhi University

Benefits of productivity growth

Productivity growth is a crucial source of growth in living standards. Productivity growth means more value is added in production and this means more income is available to be distributed.

At a firm or industry level, the benefits of productivity growth can be distributed in a number of different ways:

  • to the workforce through better wages and conditions;
  • to shareholders and superannuation funds through increased profits and dividend distributions;
  • to customers through lower prices;
  • to the environment through more stringent environmental protection; and
  • to governments through increases in tax payments (which can be used to fund social and environmental programs).

Productivity growth is important to the firm because it means that it can meet its (perhaps growing) obligations to workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place. Adding more inputs will not increase the income earned per unit of input (unless there are increasing returns to scale). In fact, it is likely to mean lower average wages and lower rates of profit. But, when there is productivity growth, even the existing commitment of resources generates more output and income. Income generated per unit of input increases. Additional resources are also attracted into production and can be profitably employed.

Concept of productivity and technology for Managerial Economics Mcom Delhi University

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Concept of productivity and technology for Managerial Economics Mcom Delhi University

Managerial economics is the “application of the economic concepts and economic analysis to the problems of formulating rational managerial decisions”. It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units. As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis, correlation and calculus If there is a unifying theme that runs through most of managerial economics, it is the attempt to optimize business decisions given the firm’s objectives and given constraints imposed by scarcity, for example through the use of operations research, mathematical programming, game theory for strategic decisions, and other computational methods.

Managerial decision areas include:

  • assessment of investible funds
  • selecting business area
  • choice of product
  • determining optimum output
  • sales promotion.

Almost any business decision can be analyzed with managerial economics techniques, but it is most commonly applied to:

  • Risk analysis – various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk.
  • Production analysis – microeconomic techniques are used to analyze production efficiency, optimum factor allocation, costs, economies of scale and to estimate the firm’s cost function.
  • Pricing analysis – microeconomic techniques are used to analyze various pricing decisions including transfer pricing, joint product pricing, price discrimination, price elasticity estimations, and choosing the optimum pricing method.
  • Capital budgeting – Investment theory is used to examine a firm’s capital purchasing decisions.

At universities, the subject is taught primarily to advanced undergraduates and graduate business students. It is approached as an integration subject. That is, it integrates many concepts from a wide variety of prerequisite courses. In many countries it is possible to read for a degree in Business Economics which often covers managerial economics, financial economics, game theory, business forecasting and industrial economics.

Concept of productivity and technology for Managerial Economics Mcom Delhi University

Part A: Firm and Market

Unit I: Demand and The Firm: Consumer Behaviour: Cardinal and ordinal approaches to the derivation

of the demand function. Revealed preference approach. Theory of attributes – Demand for consumer

durables. Firm Theory: Objectives of the firm; Theory of the growth of the firm: Marris and Penrose.

Unit II: Production and Cost: Production: Law of variable proportion. Returns to scale. Production

function: Concept of productivity and technology. Producer’s Equilibrium. Isoquants ridge lines, Isoclines,

Isocost lines.

Cost function: Classification of costs, Short run cost functions, Relationship between return to scale and

return to a factor, Long run cost functions.

Unit III: Market and Pricing: Market forms: AR-MR. Price taker; Monopoly power. Oligopolistic

behavior: Cournot and Stackelberg models. Factor Pricing: Demand and supply of factors of production.

Euler’s theorem.

Part B: Macroeconomic environment

Unit IV: Product and Asset Market Equilibrium: Product Market: Derivation of IS function. Demand

for real cash balances: Tobin’s Portfolio theory. Endogenous money supply and Asset market equilibrium. Derivation of real LM function. Real IS-LM framework.

Unit V: Aggregate Demand and Aggregate Supply: Modern aggregate demand function. Demand

Management. Philips Curve. Aggregate supply and the price level.

Concept of productivity and technology for Managerial Economics Mcom Delhi University

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