Business Economics introduction pdf

Features of perfect competition (any five):

• very large number of buyers and sellers
• homogeneous product
• free entry and exit
• perfect knowledge/information
• firms are price takers (no control over price)
• negligible selling cost (little advertising)

Hence, price is determined by market forces and individual firms accept it.

Functions of money (any four):

• Medium of exchange: money is used to buy and sell goods/services, replacing barter.
• Unit of account: prices and values are expressed in a common unit (Rs., $).
• Store of value: wealth can be held in money form for future use (though inflation reduces value).
• Standard of deferred payments: enables loans/credit and payment in future.
• Transfer of value: money allows value to be transferred easily between persons/places.

Thus, money makes exchange and economic activity smooth and efficient.

Marginal Analysis and the MR = MC Rule

Marginal analysis studies the effect of a small change (one more unit) on cost and revenue.

Key terms:

• MR (Marginal Revenue): extra revenue from selling one more unit.
• MC (Marginal Cost): extra cost of producing one more unit.

Decision rule (profit maximization):

• If MR > MC → producing one more unit adds profit → increase output.
• If MR < MC → producing one more unit reduces profit → decrease output.
• Best point is where MR = MC.

Compare MR and MC → Decide output change → Move toward MR = MC

Thus, marginal analysis provides a clear economic basis for output/pricing decisions.