EABD

Distinguish 1.
Accounting profit Total revenue-total cost (only explicit)of co. Calculated by diducting explicit cost like raw mat, rent,wages etc Applied to determine taxable income for purpose loan,int calculation,bugting etc Economic Profit Total revenue-Total cost (explicit &implicit) Calculated by diducting explicit cost and implicit cost like company owned property ,equipment, vehicle etc. Applied for sales and acquisition negotiation, production analysis

Accounting profit
A/c profit is always bigger when compared to Eco profit. It is calculated according to accepted Accounting Principles. It provided clear indication of wheather the co. is doing well or not. AP=TR-TC TR=Total Revenue TC=total cost

Economic Profit
Eco profit is always bigger when compared to A/C profit. Difference between the revenue received from sales and opportunity cost of the input used. It links only performance management measurement EP=(r-c)*capital imployed r=rate of return, c=cost of capital

Distinguish 2
Profit Optimization Process of cutting down unnecessary cost in production it cost increases profit. Strategy of understanding point where maxi profit-by increasing sales turnover or by giving discounts. Could done by By cutting down wages,source of suppliers etc. Profit Maximisation
Fixing the prices and deciding the total output levels in such a way that maximize profit. Follows st.of determining price and output level that would result highest returns. Can be done by widening the margin of profit, using inexpensing source of finance, economies of scale

 On-going st. can be applied in short as well as long run Only effective of staying ahead of competition Adv- reduce cost,increase revenue,etc. Dis adv- buss might start cutting cost and use low raw mat-& negetive impact on goodwill

Short run st. After a certain point company stop raising profit if followed this st. Adv- improve cash flow Disadv-can make buss very risky as buss is running just behind profit. Buss can loose trust and goodwill in the course of making huge profits.

Satisfying
Looking for 1st adequate solution to the problem and than they stop. This is contrast of Optimum decision making Eg. If buss wants to buy new machine pick up the first machine on the catalogue that does the job in the required time and in the required cost Can raise issued if not used correctly Eliminate unwanted information and option and help in taking accurate decision in shortest possible time.

Role of profit in market System

Profit = TR TC 1. Profit attracts new businesses 2. Profit encourages efficiency 3. Profit encourages enterprise, innovation and risk taking 4. Return to share holders 5. Research and development 6. Tax Revenue 7. Protection form risk 8. Economic activity 9. Help in measuring the effectiveness of management

Adam smith and invisible hands

The Wealth of Nations (1776). Consumers and producers, each acting in their own best interest, will ensure that the optimal output is produced. The self-regulating nature of the market-place
Assumes rational behavior

According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better off than when simply producing for himself/herself. Eg. If cost of production-8/- and price=30/;profit=22/Attract new producers and supply &price will continue. there fore continue adjustment in mkt d &s &price without any forces

limitations
Two people in a simple situation, acting in an un-informed manner, both attempting to maximize their well-being, and yet making choices that lead to an unnecessarily poor outcome for both. Murderer,robber Negative Externalities
Low wages Poor working conditions Pollution

Market Failure
Monopolies Insufficient allocations of a public good: no profit incentives to provide for it Information costs: Insufficient information for producers AND consumers

Case study on marginal cost used in determining price .

MC=change in total output due to change in output by an additional unit. It is the change in the total cost that arises when the quantity produced changes by one unit. Formula : MC=change in total cost/change in total quantity

 Case: A company is producing tables and the out put and cost are 1.100 tables costs Rs10,000/ 200 tables cost Rs 15,000/ MC=(15000-10000) /(200-100) =5000/100 =Rs: 50 The Mc for producing additional 50 unit is Rs 50/Qty 1 2 3 4 5 Price 41 40 39 38 37 Total cost 35 68 94 107 114 Total revenue 41 80 117 152 185 =(68-35)/(2-1)=27 =(94-68)/(3-2)=26 =(107-94)/(4-3)=13 =(114-107)/(5-4)=7 Marginal cost

Differentiation 3.
Break Even Profit Point at which no loss no profit. Point cost of production is = revenue earned Can be shown on graph paper COST VOLUME PROFIT Form of cost A/c helpful in taking decision in short run. Concerened with the effect of sales volumes and production cost on overall profit /buss Can show the relation ship ---

 Formula= FC/(SPVariable cost per unit ) If FC=10000,SP=5/-per unit,VC=3/-per unit Therefore BEP=10000/(5-3) BEP=5000 units

Formula PX=VX+FC+Profit P=selling price per unit V= variable cost per unit FC=total fixed cost X=no.of units produced and sold

 Assumptions FC are constant Firm produces only one product Tech is constant SP is constant Revenue changes with change in volume

Assumptions Costs can be classified as FC & VC SP ,VC per unit are constant All units produced are sold

Computation of Expected Value

Case study on Decision tree Technique

A manuf would earn

GDP
GDP =Gross Domestic Product is a measure of countrys overall economic output. It is the market value of all final goods and services made within the borders of a country in a year. It is commonly used as an indicator of the economic health of a country, as well as to gauge the a countrys standard of living. It is the monitory value of all the finished goods and services produced within a countrys in a year. It is calculated on the annual basis. GDP=C+G+I+X-M(Export -Imports) Where C=All private consumption, or consumers spending, in a nations economy G= Sum of Government spending I= Sum of all the Countrys business spending on capital X-M =Nations total net exports, calculated as total exports minus total imports

NDP(Net Domestic Product)

Net Domestic Product Net domestic product at factor Cost NDP(FC) =Wages + Interest + Rent+ Profit +Mixed Income NDP at Market price: NDP(MP)=NDP(FC)+INT-S INT denotes Indirect Taxes and S is subsidy. The taxes on goods (commodities) are called Indirect taxes. Example for Excise duty, Sales Tax etc. As due to these taxes the market price of goods increases, this amount is included in the original price. Inversely Subsidy is the amount paid by the Government to Assist the producer in meeting the cost of his production example for Subsidy on chemical fertilizers. The market price of goods decreases because of this subsidy and hence subsidy is deducted in this calculation.

PPP
Business venture which is funded and operated through a partnership of govt and 1 or more private sector companies. Also known as p3 a partnership between a public sector entity (sponsoring authority)and a private sector entity for the creation or management of infrastructure for public purpose for a specified period of time on commercial terms and in which the private partner has been procured through a transperent and open procurement system.

Distinguish 4
Capital Account
One of the major component of balance of payments. Reflects net changes in national ownership of assets. Consists short term and long term Capital transaction. Capital Receipts are receipts that create liability or reduction in assets. Capital Expenditure is where the Govt spends on projects which have a long life Eg.Damss,Bridges,roads,refineries .

Revenue Account
Provide consolidated data on all revenue/fundsof the country. It gives details on all the receipts of the country. Revenue receipts are Income which r received by the Govt. frm all sources. Revenue expenditure is the expenditure incurred for routine, day to day running expenses and expenses incurred in providing services to citizen. These do not results in formation of assets.

Capital Account
Consist Of Capital Receipts And Capital Expenditure. Consist short term and long term capital transactions. A capital out flow represents a debit and capital inflow represents credit. Capital account=Foreign direct Investments +portfolio investments+ other investment+ reserve account

Revenue Account
Consist of revenue Receipts and revenue expenditure. Revenue receipts further divided into tax and non tax revenue. Tax revenue again divided into direct tax and indirect tax. Consists of 2 A/C tax & non tax revenue. Tax revenue consists of all incomes collection of taxes like property tax, corporation tax etc. Non tax revenue consists of all the income that comes through non tax sources like gove buss and ventures. Revenue from Railway ,int receipts are part of revenue A/C

 Eg. Corporation tax, Property tax, Sales tax, Service tax, Revenue from Railways, int receipts, dividends, road,bridges,etc.

Eg. A foreign investor invests in India ;this transaction will be represented as a debit in the foreigners countries BOP and credit in the BOP in India. However payments int. on loans and dividend payments are recorded in current A/C since they are really payments for the services of capital.

Distinguish 5.
GATT General Trade and Teriffs was made in 1948with the aim to promote International Trade. GATT had provisional legal agreement . The member under GATT were called contracting parties. GATT was limited to trade in goods only WTO
World Trade Organization came into existence in the year 1995 replaced the GATT to supervise and liberal international Trade. WTO has legal permanent Provision The member under WTO are actual members . WTO includes goods,services and intellectual property rights.

GATT Under GATT there wasnt an established platform to impose trade sanctions on defaulting countries. GATT was considered weaker in terms of legislation

WTO WTO established a disput settlement mechanism that has the power to impose to impose trade sanctions ag WTO as compared to GATT is much more stronger organisation.ainst defaulting countries.

 No regular time for holding session Small secretariat managed by Director General. Agreement on Trade Related Investment Measures(TRIMs) and Trade Related Aspects of Intellectual Property Rights ( TRIPs) were not given much emphasis in GATT Discussion of GATT were not time bound

Meeting is held after 2 yea Large secretariat and huge organizational set up Led special emphasis on TRIMs and TRIPs. Rule based org. in which discussion is held in a time bound manner

Objectives of GATT & WTO

Improve of Std of living of member nation ensure full employment Enlarge production and trade Development Environmental protection Growth of INTL trade WTO Included service also Optimum utilization of world resources Protect environment

Principles of WTO
Trade without discrimination Treating foreign and local goods equally Free trade Transparency Promoting fair competition Encourage development and economic reforms

Functions Of WTO
Helping developing economies Global economic policy making Giving information to public Specialized help for Export Taking information Encouraging development and economic reforms

GDP
Is the value of all the final goods and services produced within the domestic boundaries of a country during a given period of time. Include contribution to production made by +foreigners staying in India GDP will be more than GNP if imports are more than imports

GNP Contribution to production made by the +citizens staying abroad Does not include the contribution made by foreigners staying in India GNP will be grater than GDP if export are more than imports

Distinguish 6.
National Income at market price

-the money value of all goods and services produced in a country during a year at current market price Value of all goods and services produced at current market price which includes indirect taxes. =National income at factor cost+ indirect tax-subsidy

National income at factor cost Aggregate of factor earnings for producing goods and servicing during a year Shows a income actually received by factors of production . It does not include indirect tax =National Income at market price-indirect taxes +subsidies

National Income at market price

National income at factor cost

Useful to know the contribution made by each factor of production Usually lower than National Income at market price

Useful to know the total income of a country Usually higher than National income at factor cost