Micro economics

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Micro- economics is concerned not with total output, total employment or total spending, but with the output of particular goods and services by single firms or industries and with the spending on particular goods and services by single households or by households in single market. - Edward Shapiro

In the competitive environment decrease in 'unit price' (Eg. $1) can boost sales to an unexpected level and increase in 'unit price' can leave firm far behind its competitor. Change in selling price directly affects cost, profit, investment, and dividend decision. So, to know this behaviour and react according to market position understanding of managerial micro-economic is important.

Managerial process for a single product or a typical project involves planning, decision-making and monitoring and control. Microeconomics provide sufficient ground to base the structure of managerial process. Analysis of elasticity of demand, production theory, pricing technique and investment decisions equip managers with necessary mathematical and statistical tools required for handling complex managerial issues.

Managerial problems like product price, production level, make or buy, production technique, stock level, labor hiring, investment, financing etc. are dealt with estimation, forecasting and analyzing payoff using probability, co-relation, trends analysis and risk analysis etc.

Microeconomics Applied to Operational issues: Operational issues of firms are of internal nature. Internal issues including all those problems, which arise within the business organization and fall within the circle and control of the management. Some of the basic issues are:

Ø  Choice of business and the nature of products - what to produce

Ø  Choice of size of the firm - how much to produce,

Ø  Choice of technology - within market leading technology

Ø  Choice of price - how to price commodity - cost plus or margin on sale

Ø  How to promote - use of media or relationship

Ø  How to face price competition - use of discount or offer

Ø  How to decide on new investment - make vs. buy

Ø  How to manage profit and capital - retention and dividend

Ø  How to manage inventory - JIT or bulk purchase

Thus, cost/managerial accounting, financial accounting and investment decision are all integral part of micro-economic and macro-economic study.

ACCA Article: Introduction to microeconomics