(Unit – 1: Introduction, Theory of Demand & into this process by analyzing market trends, limited in quantity.

limited in quantity. For example, there is a finite 4) Dynamic efficiency: This refers to the ability of
Supply) estimating consumer demand, and forecasting amount of arable land, a finite number of skilled an economy to adapt and innovate over time,
 What is the best definition of economics? future economic conditions. workers, and a finite amount of capital available for leading to sustained productivity growth. Dynamic
Economics is the study of scarcity and its  Investment decisions: Many engineering projects investment. efficiency involves continuous improvements in
implications for the use of resources, production of require significant upfront investments, and 2) Unlimited Wants: Human wants and needs are technology, knowledge, and skills, which enable
goods and services, growth of production and engineers often need to work closely with essentially unlimited. People always desire more the economy to produce more output with the
welfare over time, and a great variety of other economists and financial analysts to determine the goods and services than can be produced with the same amount of resources or to produce the same
complex issues of vital concern to society. best way to finance these projects. This might available resources. For example, individuals want output with fewer resources. It is essential for long-
involve analyzing the risks and returns associated more food, better housing, advanced technology, term economic growth and development.
 Discuss the 7 Principles of Engineering with different funding options, such as debt and various other goods and services. 5) Environmental efficiency: This concept
Economics. financing, equity financing, or public-private 3) Opportunity Cost: Scarcity necessitates recognizes the need to utilize resources in a
 Principle 1 - Develop the Alternatives: The partnerships. choices. When resources are scarce, choosing to sustainable manner and minimize negative
choice (decision) is among alternatives. The  Resource allocation: Engineers are often tasked produce more of one good or service means environmental impacts. It involves employing
alternatives need to be identified. A decision with optimizing the use of resources, such as labor, sacrificing the production of another. This trade-off production techniques and technologies that
involves making a choice among alternatives. materials, and energy, in order to minimize costs is known as the opportunity cost. For example, if a reduce waste, pollution, and resource depletion.
Developing and defining alternatives depends upon and maximize efficiency. Economists can help country decides to allocate more resources to the Environmental efficiency seeks to balance
engineer's creativity and innovation. inform these decisions by analyzing the economic production of consumer goods, it may have to economic development with the preservation and
 Principle 2 - Focus on the Difference: Only the value of different resources, as well as the reduce the resources available for investment in protection of natural resources and ecosystems.
differences in expected future outcomes among environmental and social impacts of different capital goods.
the alternatives are relevant to their comparison production methods. 4) Economic Problem: Scarcity gives rise to the  Mention the benefits of opportunity cost,
and should be considered in the decision. If all  Innovation and entrepreneurship: Many central economic problem of how to allocate rationality cost.
prospective outcomes of the feasible alternatives engineers are also entrepreneurs or innovators scarce resources efficiently. Since resources are Opportunity cost refers to the potential benefits
were the same, obviously, only the differences in who create new products or technologies. limited, societies must make choices about what that an individual or entity gives up when choosing
the future outcomes of the alternatives are Economics can play a key role in this process by goods and services to produce, how to produce one option over another. It is the value of the next
important. Outcomes that are common to all providing insights into market trends, consumer them, and who gets to consume them. This is the best alternative forgone. In other words, when
alternatives can be disregarded in the comparison behavior, and the regulatory landscape. Engineers subject matter of economics. deciding, the opportunity cost is what you could
and decision. For example, if two apartments were who understand these economic factors can make 5)Supply and Demand: Scarcity plays a crucial have gained by choosing a different option.
with same purchase price or rental price, decision more informed decisions about how to design and role in determining prices in a market economy. Rational costs and benefits are associated with
on selection of alternatives would depend on other market their products, as well as how to navigate When a resource is scarce, its price tends to be the decision-making process based on a rational or
factors such as location and annual operating and the business and legal aspects of higher due to increased demand relative to its logical analysis of the expected costs and benefits
maintenance expenses. entrepreneurship. availability. On the other hand, goods that are of different choices. Rational decision-making
 Principle 3 - Use a Consistent Viewpoint: The Overall, the relationship between engineering abundant tend to have lower prices. involves weighing the potential benefits against the
prospective outcomes of the alternatives, and economics is complex and multifaceted. Overall, scarcity of resources is a fundamental costs and selecting the option that maximizes the
economic and other, should be consistently Engineers who understand the economic factors economic concept that drives the need for net benefit or utility.
developed from a defined viewpoint (perspective). that shape their work are better equipped to design choices, resource allocation, and the study of When considering the costs of a decision,
Often perspective of decision maker is owner's products and systems that are efficient, economics itself. It highlights the challenge of rational analysis considers both the explicit costs
point of view. For the success of the engineering sustainable, and economically viable. Similarly, managing limited resources to satisfy unlimited (monetary expenses) and implicit costs
projects viewpoint may be looked upon from the economists who understand the technical aspects human wants and needs. (opportunity costs) associated with each choice.
various perspective e.g., donor, financer, of engineering can provide valuable insights into Explicit costs are easily measurable and involve
beneficiary group & stakeholders. However, the costs, benefits, and risks associated with  Explain in brief, the problem of scarcity of direct monetary outlays. Implicit costs, on the
viewpoint must be consistent throughout the different projects and products. resources : other hand, are the foregone opportunities and
analysis. The problem of scarcity is a fundamental benefits associated with choosing one option over
 Principle 4 - Use a Common Unit of Measure:  Resources of economics : concept in economics. It refers to the condition another.
Using a common unit of measurement to There are various resources available for studying where human wants and needs exceed the Similarly, when evaluating the benefits, rational
enumerate as many of the prospective outcomes economics, ranging from textbooks and academic available resources necessary to satisfy them. In analysis considers both the direct benefits and
as possible will make easier the analysis and journals to online courses and websites. Here are other words, there are limited resources but indirect benefits associated with each choice.
comparison of the alternatives. For economic some commonly used resources for economics: unlimited wants. Direct benefits are the immediate gains or
consequences, a monetary unit such as dollars or 1) Textbooks: Academic textbooks are a Scarcity exists due to several reasons: advantages resulting from a decision, while
rupees is the common measure. fundamental resource for studying economics. 1) Limited Resources: Resources such as land, indirect benefits may include long-term
 Principle 5 - Consider all Relevant Criteria: Some popular textbooks include "Principles of labor, capital, and natural resources are limited in advantages, improved outcomes, or other positive
Selection of preferred alternative (decision Economics" by N. Gregory Mankiw, supply. These resources are used to produce goods consequences.
making) requires the use of a criterion (or several "Microeconomics" and "Macroeconomics" by Paul and services to fulfill human needs and wants. By conducting a rational analysis of costs and
criteria). The decision process should consider Krugman and Robin Wells, "Economics" by Paul However, their quantity is finite, leading to scarcity. benefits, individuals or entities can make informed
both the outcomes enumerated in the monetary Samuelson and William Nordhaus, and "The decisions by comparing and assessing the
unit and those expressed in some other unit of Wealth of Nations" by Adam Smith. 2)Unlimited Human Wants: Human wants and potential outcomes of different choices. This
measurement or made explicit in a descriptive 2) Academic Journals: Economic research is needs are virtually unlimited. People always desire process helps in maximizing utility or achieving
manner. Apart from the long-term financial interest published in academic journals, which provide in- more goods and services to improve their well- desired goals by selecting the option that offers the
of owner, needs of stakeholders should be depth analysis and studies on various economic being and standard of living. There is no end to the greatest net benefit, considering both the explicit
considered. topics. Some prominent journals include the desires of individuals, and they often compete for and implicit costs and the direct and indirect
 Principle 6 - Make uncertainty Explicit: "Quarterly Journal of Economics," "American resources to satisfy those desires. benefits.
Uncertainty is inherent in projecting (or estimating) Economic Review," "Journal of Political Economy,"
the future outcomes of the alternatives and should and "Review of Economics and Statistics."  Mention about Efficient utilization of  State the law of demand, explaining it with
be recognized in their analysis and comparison. 3) Online Courses: Several online platforms offer resources. the help of demand schedule and related
The magnitude & impact of future impact of any courses in economics, often taught by renowned Efficiency in resource utilization is a fundamental graph. Also, State the assumptions to the law
course of action are uncertain or probability of professors. Websites like Coursera, edX, and Khan concept in economics that refers to the optimal of Demand .
occurrence changes from the planned one. Thus, Academy provide a wide range of courses, allocation and utilization of resources to maximize According to Alfred Marshall, the law of demand
dealing with uncertainty is important aspect of including introductory and advanced topics in productivity and output. It is closely related to the is defined as "Other things being equal, the quantity
engineering economic analysis. microeconomics, macroeconomics, concept of economic efficiency, which is the ability of a commodity demanded varies inversely with its
 Principle 7 - Revisit your Decisions: Improved econometrics, and more. of an economy to produce goods and services with price." Law of demand can be expressed as,
decision-making results from an adaptive process; 4) Economic Organizations and Think Tanks: the least amount of wasted resources. 𝐷{𝑥} = 𝑓 (𝑃{𝑥} )
to the extent practicable, the initial projected Organizations such as the International Monetary 1) Allocative efficiency: This refers to the allocation Where,
outcomes of the selected alternative should be Fund (IMF), World Bank, Organisation for of resources in a way that maximizes the D= demand for commodity X
subsequently compared with actual results Economic Co-operation and Development satisfaction of consumers' wants and needs. It X = commodity demanded
achieved. If results significantly different from the (OECD), and Federal Reserve System publish occurs when resources are allocated to the F = function of
initial estimates, appropriate feedback to the reports, research papers, and economic data that production of goods and services that are most Px = price of the commodity X
decision-making process should occur. can be valuable resources for understanding global valued by society. In a market economy, allocative In other words, Law of demand states that there
economic trends and policies. efficiency is achieved when prices reflect the true is an inverse relation between the price of a
 Establish the relationship between 5) Government Data Sources: Government costs and benefits of production, and resources commodity and its quantity demanded, assuming
Engineering and Economics. agencies collect and publish economic data, flow to their most valued uses. all other factors affecting demand remain
Engineering and economics are two different which can be accessed for research and analysis. 2) Technical efficiency: This refers to the constant. It means that when the price of a good
fields, but they are closely related in many ways. For example, the U.S. Bureau of Economic production of goods and services using the least falls, the demand for the good rises and when price
Engineers are concerned with designing and Analysis (BEA), U.S. Census Bureau, and the amount of inputs or resources. It means achieving rises, the demand falls.
building physical systems and products, while Federal Reserve Economic Data (FRED) provide the maximum output from a given set of inputs. Law of demand may be explained with the help of
economists focus on studying the production, extensive economic statistics and indicators. Technical efficiency can be improved through the following demand schedule and demand
distribution, and consumption of goods and technological advancements, innovation, and curve:
services. However, the relationship between these  Scarcity of resources in economics : better production methods. For example, using
two fields is important because economics plays a Scarcity is a fundamental concept in economics advanced machinery or optimizing production
crucial role in shaping the decisions engineers that refers to the limited availability of resources processes can lead to higher output levels with the
make about what products to build, how to design relative to unlimited human wants and needs. It is same amount of resources.
them, and how to produce them. Here are a few a condition that exists because resources, such as 3) Productive efficiency: This is a specific aspect of
examples of the relationship between engineering land, labor, capital, and natural resources, are technical efficiency and refers to the production of
and economics: finite, while people's desires for goods and goods and services at the lowest possible cost. It
 Cost-benefit analysis: Engineers often use cost- services are virtually unlimited. occurs when production takes place at the lowest
benefit analysis to evaluate the feasibility of a Here are a few key points related to the scarcity of point on the average cost curve, where the firm is
project or product. This involves calculating the resources in economics: producing at the minimum efficient scale.
costs of designing, building, and operating a system 1) Limited Resources: Resources are the inputs Productive efficiency ensures that resources are
or product, as well as the potential benefits it could used in the production of goods and services. used efficiently in the production process,
provide. Economists can provide valuable insights These resources have alternative uses and are minimizing wastage and reducing costs.
The above table and diagram show that as the price and the quantity demanded, holding other factors 2) Cost of Production: The cost of producing a good able to sell exactly the quantity they want to sell at
of the good reduces from Rs 5 to Rs 4, the demand constant. This is known as the law of demand. As or service is a significant determinant of supply. this price and the buyers are able to buy exactly the
for the good increases from 100 to 200 units. the price of a good increases, consumers tend to Factors such as raw material prices, labor costs, quantity that they want to buy at this price.
❖ Assumptions to the law of Demand: demand less of it, ceteris paribus. Conversely, rent, and other production expenses influence the
 There will be no introduction of any substitutes. when the price decreases, consumers generally cost of production. If production costs rise,  Suppose that the market demand in a
 There will be no change in prices of substitute demand more of the good. producers may be less willing to supply the product perfectly competitive industry is given by Q D
goods. Economists use demand functions to analyze at a given price, leading to a decrease in supply. = 70000-5000P
 There will be no anticipation of price change in consumer behavior, predict changes in demand 3) Technological Advancements: Technological The market supply function is QS = 40000 +
future. due to various factors, estimate market demand, advancements can improve the efficiency of 2500P
 There will be no change in the income level of the and make pricing and production decisions. By production, reduce costs, and increase the With P given in rupees find the market
consumer. understanding the factors that influence demand, quantity that producers are capable of supplying. equilibrium price and quantity .
 There will be no change in the taxation policy of businesses and policymakers can respond to Innovations that enhance productivity and At equilibrium, 𝑄𝐷 = 𝑄𝑠
the government. changes in market conditions and make informed streamline production processes can lead to an 70000 − 5000𝑃 = 40000 + 2500𝑃
 There will be no change in consumer's taste, decisions about pricing, marketing, and resource increase in supply. 7500𝑃 = 30000
30000
preference and habit. allocation. 4) Input Prices: The prices of inputs used in the 𝑃 = 7500 = 4.00𝑅𝑠
 There will be no change in size, sex and age production process, such as raw materials, energy, Now, when P = 4.00 Rs, then
composition of the population.  Explain the concept of price elasticity of and labor, can affect supply. If the prices of these 𝑄𝐷 = 70000 − (5000 × 4) = 50000 𝑢𝑛𝑖𝑡𝑠
demand and supply. Also state the different inputs increase, the cost of production rises, which 𝑄𝑆 = 40000 + (2500 × 4) = 50000 𝑢𝑛𝑖𝑡𝑠
 Classification of Demand in economics. types of elasticities. may result in a decrease in supply. Therefore at market equilibrium price = 4.00rs at
In economics, demand refers to the quantity of a The price elasticity of demand is the percentage 5) Number of Suppliers: The number of producers which 50000 units are produced and sold.
good or service that consumers are willing and able change in the quantity demanded of a good or or suppliers in a market can impact supply. When
to purchase at a given price and time period. There service divided by the percentage change in the new firms enter an industry, the overall supply  How the equilibrium price will change in a
are several different types of demand that price. The price elasticity of supply is the tends to increase. Conversely, if firms exit the perfectly competitive market when there is a
economists analyze and study. Here are some of percentage change in quantity supplied divided by market, supply may decrease. change in - (a) demand, (b) supply.
the key types of demand: the percentage change in price. 6) Government Policies and Regulations: Equilibrium price is determined in the market by
1) Individual Demand: Individual demand refers to Elasticities can be usefully divided into five broad Government policies, such as taxes, subsidies, the equality of demand and supply. This price may
the quantity of a good or service that an individual categories: perfectly elastic, elastic, perfectly and regulations, can significantly impact the supply change either due to the change in demand or
consumer is willing and able to purchase at inelastic, inelastic, and unitary. An elastic demand of goods and services. For example, subsidies can change in supply or change in both demand and
different price levels. It is influenced by factors or elastic supply is one in which the elasticity is incentivize producers to increase supply, while supply.
such as the consumer's income, preferences, greater than one, indicating a high responsiveness taxes and regulations may increase production  Equilibrium price will increase with the increase
price of related goods, and personal to changes in price. An inelastic demand or costs and reduce supply. in demand.
circumstances. inelastic supply is one in which elasticity is less It's important to note that these determinants  Equilibrium price will decrease with the increase
2) Market Demand: Market demand is the total than one, indicating low responsiveness to price often interact with each other, and changes in one in supply.
quantity of a good or service that all consumers in changes. Unitary elasticities indicate proportional determinant can lead to ripple effects on others.  The effect of increase in demand and increase in
a market are willing and able to purchase at responsiveness of either demand or supply. Additionally, the degree of influence of each supply on equilibrium price is opposite.
different price levels. It is derived by summing up Perfectly elastic and perfectly inelastic refer to determinant can vary depending on the specific Thus when both demand and supply increases,
the individual demand of all consumers in the the two extremes of elasticity. Perfectly elastic industry or market under consideration. then the equilibrium price either may,
market. means the response to price is complete and  increase
3) Aggregate Demand: Aggregate demand infinite: a change in price results in the quantity  Write down the formula showing the  decrease or
represents the total quantity of goods and services falling to zero. Perfectly inelastic means that there relationship between MR Price and Elasticity  remain in same
that an entire economy is willing and able to is no change in quantity at all when price changes. of Demand.  Equilibrium price will increase with the increase
purchase at different price levels. It includes If…. It is called…. The relationship between MR and ED is that each in both demand and supply, when the rate of
consumer spending, investment, government % change in quantity
=∞ Perfect elastic measurement is important in managerial decisions increase in demand is more than the rate of
% change in price
spending, and net exports. on price and quantity. For example, if managers increase in supply.
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
>1 Elastic
4) Effective Demand: Effective demand refers to % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 understand the elasticity of demand for its  Equilibrium price will decrease with the increase
the quantity of goods and services that consumers % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
=1 Unitary product, he or she will be able to make in informed in both demand and supply, when the rate of
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
are not only willing to purchase but also have the decision on how consumers will react to a price increase in supply is more than the rate of increase
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
<1 Inelastic
purchasing power to do so. It takes into account % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 increase or decrease. If the manager decides to in demand.
both the desire and ability to buy. % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
=0 Perfect inelastic raise the price of the product and demand for the  Equilibrium price will remain the same, if the rate
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
5) Derived Demand: Derived demand occurs when product which is elastic, consumers will likely of increase in demand is equal to the rate of
the demand for one good or service is driven by the  Mention one exception to the law of purchase less of the product. increase in supply.
demand for another good or service. For example, demand. Formula
the demand for labor is derived from the demand Usually demand curve slopes downward from left MR = Marginal Revenue  The demand equation is: 𝒑 = 𝟏𝟎𝟎 − 𝟎. 𝟐𝒒
for the goods or services that labor helps produce. to right. If instead of downward sloping shape we P=Price of the Good and supply equation is: 𝒑 = 𝟏𝟎 + 𝟎. 𝟑𝒒. Find
6) Elastic Demand: Elastic demand exists when a find upward or vertical shape demand curve then E=Own Price Elasticity of Demand the equilibrium price and quantity demand.
small change in price leads to a proportionately there will be an exception to the law of demand. Now suppose demand curve shifts & new
larger change in the quantity demanded. In other The main exceptions to the law of demand: demand equation is: p = 200-0.2q. Calculate
words, consumers are highly responsive to price  Conspicuous Consumption: Some commodities new equilibrium price & quantity demanded.
changes. Elastic demand is often associated with are very costly particularly or the common people, Mention where the new demand curve shifted
goods or services that have close substitutes. for e.g. diamond, costly jewelry etc. There are – either to the left or to the right.
7) Inelastic Demand: Inelastic demand occurs some person who consume such goods to show  Demand equation 𝑃 = 100 − 0.2𝑞
when a change in price has a relatively small their social status. This is called Conspicuous Supply equation 𝑃 = 10 + 0.3𝑞
impact on the quantity demanded. In such cases, Consumption. In that case demand of the Equilibrium condition is Demand = Supply
𝐸−1
consumers are less responsive to price changes. commodity increases with the rise in price of the 𝑀𝑅 = 𝑃 ( ) Or, 100 − 0.2𝑞 = 10 + 0.3𝑞
𝐸
Goods or services that are necessities or have commodity. Or, 0.3𝑞 + 0.2𝑞 = 90
Formula Consequences
limited substitutes often exhibit inelastic demand.  Speculative market: In case of share we get an Or, 0.5𝑞 = 90
When E is between negative infinity (exclusive)
8) Cross Demand: Cross demand refers to the exception to the law of demand. Generally the 90
and -1 (exclusive), then demand is elastic, and the 𝑞=
responsiveness of the quantity demanded of one demand of a share increases with the rise in price 0.5
formula implies that MR is positive.
good to a change in the price of another related of the share and vice-versa. 𝑞 = 180
When E = −1, demand is unitary elastic, and the
good. It measures the degree of complementarity  Giffen Good: In case of Giffen good we find an Now, 𝑃 = 100 − 0.2𝑞
formula implies that MR is zero. When E is between
or substitutability between goods. exception to the law of demand. Giffen good When, 𝑞 = 180, 𝑡ℎ𝑒𝑛 𝑃 = 100 − 0.2 × 180 =
-1 (exclusive) and 0 (exclusive), demand is
(according to the name of Robert Giffen) is a inelastic, and marginal revenue is negative. 100 − 90 = 10
 State the Demand function in economics. Equilibrium price= 10; Equilibrium quantity= 180
special type of good whose demand increases with
In economics, a demand function is a the rise in price and vice-versa.  Explain the concept of market equilibrium. When demand equation becomes P = 200-0.2q
mathematical expression that represents the  Future expectation: If consumer expects a rise in A market is in equilibrium if at the market price the then the basis of the equilibrium condition D=S
relationship between the quantity of a good or We get 200 − 0.2𝑞 = 10 + 0.3𝑞
price of the commodity in near future, then the quantity demanded is equal to the quantity
service demanded and the factors that influence it. Or, 0.5𝑞 = 190
demand of that commodity will increase with the supplied. The price at which the quantity
The most common form of a demand function is: Or,
190
𝑞 = 0.5 = 380
rise in price. demanded is equal to the quantity supplied is
Qd = f(P, Y, Pr, T, O)  Highly Essential Goods: In case of highly called the equilibrium price or market clearing So, Equilibrium price 𝑃 = 200 − 0.2 × 380
Where:
essential goods demand of the commodity will price, and the corresponding quantity is the 𝑃 = 20
Qd represents the quantity demanded of a good or New equilibrium price, P = 20 and new equilibrium
remain the same with the rise or fail in the price of equilibrium quantity.
service. In a market, sellers who offer a good or service quantity, q = 380
the commodity.
P is the price of the good or service. interact with buyers who do not possess the good In this case demand curves shifts parallely to the
Y denotes the consumer's income level.  Determinants of supply in economics . and want to acquire it. At each price the sellers right.
Pr represents the prices of related goods
In economics, the determinants of supply refer to decide how many units they want to offer or supply
(substitutes and complements).
the various factors that influence the quantity of a at this price, and the buyers decide how many units
T refers to the consumer's tastes and preferences.
good or service that producers are willing and able they want to buy or demand. The quantity supplied
*O represents other factors such as consumer (Unit – 2: Theory of Production & Costs)
to offer for sale in the market. These determinants will be higher the higher the market price of the
expectations, demographics, and government  Concept of production (goods & services):
can affect the supply curve and cause it to shift good, whereas the quantity demanded will be
policies. lower the higher the market price of the good. The concept of production in economics refers to
either to the right (increase in supply) or to the left
The specific form and variables included in a the process of combining inputs, such as labor,
(decrease in supply). Here are the key At the price at which these two quantities are
demand function can vary depending on the capital, and raw materials, to create goods or
determinants of supply: identical, i.e., at the price at which the quantity
context and the assumptions made. In some
1) Price of the Product: The price of the product demanded equals the quantity supplied, the services that satisfy human wants and needs. It
cases, the demand function may be simplified to involves transforming inputs into outputs through
itself has a direct impact on the quantity supplied. market is in equilibrium. In equilibrium there are no
include only a subset of the variables mentioned various production activities and techniques.
As the price of a product increases, producers are buyers who would like to buy the good but cannot
above. Production of Goods: The production of goods
generally more willing to supply a greater quantity, find a seller, and there are no sellers who would like
The demand function typically assumes an to sell the good but are unable to find a buyer. This involves the creation of tangible, physical products
assuming other factors remain constant.
inverse relationship between the price of a good means that at the equilibrium price, the sellers are that can be seen and touched. Goods can range
from basic commodities like food, clothing, and It is derived by adding fixed costs (FC) and variable It's important to note that average cost can be profit can be positive, negative, or zero, indicating
furniture to complex machinery, automobiles, and costs (VC) together. The shape of the TC curve further broken down into average fixed cost (AFC) the level of returns above, below, or equal to the
electronics. The production process typically depends on the behavior of the variable costs. and average variable cost (AVC). opportunity cost of the resources employed.
includes activities such as extraction of raw Initially, the TC curve has a positive slope, AFC = FC / Q AVC = VC / Q 3. Role of Profit in the Economy: Profit plays a
materials, manufacturing, assembly, and indicating increasing total costs as output  Relation between AC & MC:- crucial role in the functioning of a market economy
packaging. increases. The relationship between average cost (AC) and and serves several
Production of Services: The production of services As output expands, the TC curve may exhibit marginal cost (MC) is important for understanding important functions:
involves the creation of intangible outputs that diminishing marginal returns, causing the slope to cost efficiency and decision-making in the  Incentive for entrepreneurship and risk-taking:
provide value to consumers. Services are activities steepen. production process. The key relationship between The potential for earning profit encourages
performed by individuals or organizations to meet Eventually, the TC curve starts to flatten due to AC and MC can be summarized as follows: individuals to undertake
specific needs or requirements. Examples of and resource constraints. 1. AC and MC intersect at the minimum point of entrepreneurial activities, invest capital, and take
services include healthcare, education, 2. Average Variable Cost (AVC) Curve: The the AC curve: In the short run, the average cost risks in the pursuit of financial gain.
transportation, banking, entertainment, and average variable cost curve represents the variable (AC) curve is U-shaped due to the presence of fixed  Allocation of resources: Profit signals market
consulting. Service production often involves cost per unit of output. It is derived by dividing the costs and diminishing returns to the variable input. participants about the relative scarcity and value of
direct interaction between service providers and variable cost (VC) by the quantity of output. The The marginal cost (MC) curve intersects the AC resources. Higher profit margins in a particular
consumers. AVC curve is U-shaped due to the impact of curve at its minimum point. industry attract resources, such as labor and
diminishing marginal returns on variable costs.  When MC is below AC: When the marginal cost is capital, towards more profitable ventures and
 Different factors of production (fixed and Initially, as output increases, the AVC curve below the average cost, it pulls the average cost away from less profitable ones.
variable factors) . decreases due to spreading the fixed costs over a down.  Innovation and competition: Profit provides a
Factors of production are the various inputs larger output quantity and the benefits of This means that producing an additional unit of reward for successful innovation and competition.
required in the production process to create goods specialization. output is adding less to the average cost than the Firms that generate profits by offering better
and services. These factors can be classified into Beyond a certain level of output, the AVC curve existing average cost. In this range, the average cost products or services at competitive prices are
two main categories: fixed factors and variable starts to rise due to diminishing marginal returns is decreasing. incentivized to continue innovating and improving
factors. Let's explore each category in more detail: and the need for additional variable inputs.  When MC is above AC: When the marginal cost is their offerings to maintain their competitive edge.
1. Fixed Factors: Fixed factors of production are 3. Average Total Cost (ATC) Curve: The average above the average cost, it pulls the average cost up.  Economic growth and development: Profitable
inputs that cannot be easily or quickly adjusted in total cost curve represents the total cost per unit of This means that producing an additional unit of businesses contribute to overall economic growth
the short run. These factors are relatively fixed in output. It is derived by dividing the total cost (TC) output is adding more to the average cost than the and development by generating income, creating
quantity and do not vary with changes in output by the quantity of output. The ATC curve is U- existing average cost. In this range, the average cost employment opportunities, and generating tax
levels. Some examples of fixed factors include: shaped due to the behavior of both fixed and is increasing. revenue for governments.
 Capital Goods: Capital goods, such as buildings, variable costs.  At the point where MC equals AC: The minimum
machinery, equipment, and infrastructure, are The ATC curve initially decreases with output due point of the AC curve occurs when MC intersects  Show how the derivation of MP and AP and
considered fixed factors as they require significant to spreading fixed costs over a larger output AC. At this point, MC is equal to AC, indicating that different returns to scale can be illustrated by using
time and resources to alter or expand. Once these quantity and experiencing economies of scale. the additional cost of producing one more unit is the Cobb-Douglass Production Function.
capital goods are in place, their quantity remains  Long-run Cost Curves: In the long run, all inputs exactly equal to the average cost of all units Marginal Product of factors
fixed regardless of the level of production. are variable, and firms have the flexibility to adjust produced. This is the point of cost efficiency, and 𝑋 = 𝐴𝐿𝛼 𝐾𝛽 𝑈
 Land: Land resources, including natural their production levels and resource allocations. firms aim to produce at this level to minimize costs. 𝑀𝑃𝐿 = 𝑑𝑋|𝑑𝐿 = 𝐴𝛼𝐿𝛼−1 𝐾𝛽 𝑈
resources, physical space, and geographic The long-run cost curves depict the relationship 2. AC is above MC when AC is increasing: In the = 𝛼(𝐴𝐿𝛼 𝐾𝛽 𝑈)𝐿−1
locations, are also considered fixed factors. The between costs and output when all inputs can be range where AC is increasing (to the right of the = 𝛼𝑋𝐿−1 = 𝛼𝑋|𝐿 = 𝛼𝐴𝑃𝐿
supply of land is fixed in the short run and cannot changed. The two main long-run cost curves are: minimum point), MC is above AC. This indicates Implication: This implies that in a Cobb - Douglas
be easily changed to accommodate changes in 1. Long-run Average Cost (LRAC) Curve: The that the marginal cost of producing an additional function the exponent of a factor gives the ratio
production levels. long-run average cost curve represents the per-unit unit is higher than the average cost. As such, each between MP and AP.
2. Variable Factors: Variable factors of production cost of production at different output levels when additional unit of output adds more to the average
are inputs that can be adjusted in the short run to the firm can vary all inputs. It is derived by dividing cost, leading to an increase in average cost.  What is law of variable proportion?
meet changes in output levels. These factors can the long-run total cost (LTC) by the quantity of 3. AC is below MC when AC is decreasing: In the Discuss it with graphical presentation.
be increased or decreased depending on the output. range where AC is decreasing (to the left of the The law of variable proportions (new name for the
production requirements. Some examples of The LRAC curve shows the minimum average cost minimum point), MC is below AC. This implies that law of diminishing returns of classical economics)
variable factors include: of producing each level of output when the firm can the marginal cost of producing an additional unit is examines the input-output relationship in the short
 Labor: Labor is a key variable factor and refers to choose the most efficient combination of inputs. lower than the average cost. Each additional unit of run when change in output is effected by varying
the human effort, skills, and expertise involved in The LRAC curve is U-shaped due to economies of output adds less to the average cost, resulting in a the quantity of one factor/ input only keeping the
production. The quantity of labor can be adjusted scale in the initial stages and diseconomies of decrease in average cost. quantity of other factors fixed.
by hiring or laying off workers based on the level of scale beyond a certain level of output. Understanding the relationship between AC and Stage I: Stage of Increasing Return Total product
production. Labor is considered a variable factor 2. Long-run Marginal Cost (LRMC) Curve: The MC is crucial for firms to make informed increases at an increasing rates upto point of
because it can be varied in the short run. long-run marginal cost curve represents the production decisions. When MC is below AC, it is inflexion, (TP curve is concave upwards upto the
 Raw Materials: Raw materials and intermediate change in total cost resulting from producing an generally advantageous to increase production to point). Marginal product (which shows nothing but
inputs, such as components or parts used in the additional unit of output when all inputs are take advantage of economies of scale and lower the rate of change in total product) also rises and
production process, are also variable factors. The variable. It is derived by calculating the slope of the average costs. When MC is above AC, it may be reaches its maximum at point of inflexion. Beyond
quantity of raw materials can be adjusted based on long-run total cost curve. beneficial to decrease production to avoid the point of inflexion, total product still increases
the production requirements. The LRMC curve intersects the LRAC curve at its incurring higher costs. The goal is to produce at the but at a decreasing rate MP curve reaches at
It's important to note that the classification of lowest point, indicating the minimum average cost. level where AC is minimized, which ensures cost highest point at point of inflexion and - thereafter
factors of production as fixed or variable can vary The LRMC curve is U-shaped and typically efficiency and maximizes profitability. starts falling but is greater than average product
depending on the time frame under consideration. intersects the LRAC curve at its minimum point. throughout this stage - AP curve rises throughout
Factors that may be fixed in the short run can  Describe Economic concept of profit. this stage and reaches its highest point where the
become variable in the long run as producers have  Basic concept on total cost, fixed cost, The economic concept of profit refers to the stage ends and where it is cut by falling MP.
more time to adjust their production capacities and variable cost, marginal cost, average cost. financial gain or surplus earned by a firm or Stage II: Stage of Decreasing Returns TP continues
make strategic decisions.  Total Cost (TC): Total cost refers to the overall individual after deducting all costs and expenses to increase at a decreasing rate until it reaches
cost incurred by a firm in producing a given quantity from total revenue. Profit serves as a measure of maximum point where the stage ends where MP is
 Theory of Cost: Short-run and long-run cost of output. It includes all costs, both fixed and the financial success and efficiency of a business zero (MP curve cuts the X-axis) - both the MP and
curves with graphical illustration . variable, associated with the production process. or economic endeavor. It incentivizes AP are diminishing but are positive.
The theory of cost in economics examines how TC is the sum of fixed costs (FC) and variable costs entrepreneurship, risk-taking, and innovation in a Stage III: Stage of Negative Returns TP declines
costs vary with changes in production levels and (VC). TC = FC + VC market economy. Here are some key aspects of the (TP curve falls as a result MP is negative, MP curve
the allocation of resources. It analyzes both short-  Fixed Cost (FC): Fixed costs are expenses that economic concept of profit: goes below the X-axis) and AP falls because of fall
run and long-run cost curves, which illustrate the do not change with changes in the level of output or 1. Calculation of Profit: Profit is calculated by of MP.
relationship between costs and output. Let's production. These costs are incurred regardless of subtracting total costs (including both explicit and
explore these cost curves and their graphical whether the firm produces any output. Examples of implicit costs) from total
representations: fixed costs include rent, salaries of permanent revenue.
employees, insurance premiums, and depreciation Profit = Total Revenue - Total Costs (Unit – 3: Different types of market & Role of
of capital equipment. Total revenue represents the total amount of Govt.)
 Variable Cost (VC): Variable costs are expenses money received from selling goods or services.  Discuss the characteristics of the perfectly
that vary with changes in the level of output or Total costs include explicit costs, which are the competitive market.
production. actual out-of-pocket expenses incurred, such as The essential characteristics of Perfect
They depend on the quantity of inputs used in the wages, rent, raw materials, and utilities. It also Competition are as follows
production process. Examples of variable costs includes implicit costs, which are the opportunity a. A Large Number of Buyers and Sellers: Under
include wages of temporary workers, raw costs of using resources owned by the firm, such perfect competition there are a large number of
materials, energy costs, and packaging expenses. as the opportunity cost of the owner's time and the buyers and sellers of a commodity. The numbers of
 Marginal Cost (MC): Marginal cost represents foregone interest on invested capital. buyers are so many that a single buyer buys a very
the additional cost incurred by producing one more 2. Types of Profit: There are different types of profit small part of the market supply. Similarly, a single
unit of output. It measures the rate of change in that provide insights into various aspects of seller supplies a very small part of the total output.
total cost resulting from a change in output. business performance: For this reason, the size of a competitive firm
 Short-run Cost Curves: In the short run, some Mathematically, marginal cost can be calculated  Accounting Profit: Accounting profit is the becomes very small in relation to the industry to
inputs are fixed (e.g., capital), while others are by taking the derivative of the total cost function traditional measure of profit calculated by which it belongs.
variable (e.g., labor). Short-run cost curves show with respect to output quantity. MC = ΔTC / ΔQ subtracting explicit costs from total revenue. It b. An Identical or a Homogeneous Product: All the
how costs change as output varies while keeping  Average Cost (AC): Average cost is the cost per focuses on the monetary expenses incurred by the sellers in a perfectly competitive market supply an
the fixed inputs constant. The three main short-run unit of output and is calculated by dividing total firm. identical product. In other words, the prod-ucts of
cost curves are: cost (TC) by the quantity of output (Q). Average  Economic Profit: Economic profit takes into all the competitive firms are the same.
1. Total Cost (TC) Curve: The total cost curve cost provides insight into the average efficiency of account both explicit and implicit costs. It c. No Individual Control Over the Market Supply
represents the total cost of production at different production and helps firms determine their pricing measures the residual income that remains after and Price: As many sellers are selling an identical
output levels. strategies. AC = TC / Q compensating all resources, including the product, a single firm supplies a negligible or an
opportunity cost of the resources used. Economic insignificant portion of the industry. For this reason,
it has no control over market supply and market  Write down about the Role of government four types of projects demanding different  What do you mean by Project
price. In other words, a single firm cannot bring in Socialist, Capitalist and Mixed Economy approaches. These are: management? Discuss the Phases in Project
about an appreciable change in total supply structure with example. 1. Traditional Projects: These are projects that life cycle?
through the variation in its own supply. As a result The role of government varies in different economic follow a templated lifecycle. The course of the Project management is defined as the process of
it cannot influence the market price through its own systems, such as socialist, capitalist, and mixed project is predicted, and so is its outcome. It is steering a project from the start through its
independent action. For this reason, a competitive economies. Here's an overview of the role of about creating products/goods, and services. With lifecycle. The main objective of project
firm is described as "a price-taker, not a price- government in each of these systems, along with multiple and dynamic manufacturing practices management is to complete a project within the
maker", and it has to sell all the units of its own examples: available, competition is stiff and stringent established goals of time, budget, and quality.
output at the prevailing market price. From this it 1. Socialist Economy: In a socialist economy, the planning for production is required. Some things Projects have life cycles since they aren't intended
follows that the demand curve or the average government plays a central role in planning and have to be taken into account before chalking a to last forever.
revenue curve of a competitive firm becomes a controlling the means of production. The key production plan.
horizontal line. As the price remains the same for objectives of government intervention in a socialist 2. Agile Projects: Knowledge of general  Importance of Project Management:-
all units of output, its marginal revenue curve economy include promoting social welfare, management and specialization in domain Project management is crucial for the success of
becomes identical with the average revenue curve. reducing income inequality, and ensuring management is especially needed when we need any project, regardless of its size or
d. No Buyers' Preferences: In a perfectly collective ownership and control of resources. to plan an iterative project. Here objectives can complexity. Here are some reasons why project
competitive market there is no preference of Example: Cuba operates as a socialist economy, only be accomplished dependent on a series of management is important:
buyers for the product of any particular seller. As where the government controls most of the operations that are themselves affected by 1. Meeting project objectives: Project management
the products of all the sellers are identical, buyers industries and resources. The state owns and resource constraints. There are glaring conflicts helps to define and clarify the objectives of the
can buy the product from any of them. operates major sectors such as healthcare, between stated objectives about scope, costs, project, ensuring that everyone involved is working
e. Free Entry and Free Exit of Firms: In this type of education, and transportation, and provides timelines, and quality and the limitations clamped towards the same goal. A clear understanding of
market new firm can freely enter the industry or an services to the population. on human, material, and financial resources. the objectives helps to ensure that the project is
existing firm can freely leave the industry in the long 2. Capitalist Economy: In a capitalist economy, the 3. Agency Projects: Managing a project is all about completed on time, within budget, and to the
run. role of the government is typically limited, with a multitasking. Several elements have to be required quality standards.
focus on maintaining law and order, enforcing simultaneously handled, all the while anticipating 2. Managing resources effectively: Project
 Short notes on: Monopoly, Monopolistic contracts, and providing public goods and services. different outcomes to be achieved within the pre- management involves identifying the necessary
Competition, and Oligopoly The government's primary goal is to create a decided timeframe and budget restrictions. There resources required to complete the project, such
Imperfect competition refers to market structures favorable environment for businesses to operate are some very common issues that a manager is as personnel, equipment, and materials. Effective
that deviate from the ideal conditions of perfect and compete. bound to encounter, namely of scope definition, resource management helps to ensure that
competition. The three main forms of imperfect Example: The United States operates as a budget, communication, and conflict within the resources are allocated efficiently, reducing costs
competition are monopoly, monopolistic capitalist economy, where the government plays a team. A cloudy outline of objectives can give rise to and maximizing productivity.
competition, and oligopoly. Here's a brief regulatory role. It enforces antitrust laws to prevent a host of problems, including those related to 3. Managing risks: Every project comes with its
explanation of each: monopolies, provides infrastructure and public resource and stakeholder management. own set of risks and uncertainties, and project
1. Monopoly: A monopoly occurs when a single services, and ensures consumer protection Oftentimes, this is the major cause of project management involves identifying, assessing, and
firm dominates the entire market and has no close through regulatory agencies like the Federal Trade failure. Along with the clarity of goals comes the managing those risks effectively. This helps to
substitutes. Key features of a monopoly include: Commission (FTC) and the Food and Drug setting of milestones and the calibration of results. minimize the impact of any potential problems and
 Single seller: There is only one firm that controls Administration (FDA). 4. Remote Projects: The management of these ensures that the project stays on track.
the market and has significant market power. 3. Mixed Economy: In a mixed economy, elements projects vastly differs from the other three types of 4. Ensuring communication: Project management
 Barriers to entry: Monopolies often have high of both socialism and capitalism are present. The projects in the way they are planned, performed, or involves creating a clear communication plan that
barriers to entry, such as exclusive control over government intervenes to varying degrees in managed. The goals and objectives in remote ensures that everyone involved in the project is
essential resources, patents, or legal restrictions. economic activities, aiming to balance the projects are not the same as in the other informed about the progress, challenges, and
These barriers prevent or limit the entry of new interests of private enterprise and public welfare. It developmental projects, which have customer decisions made. This helps to ensure that everyone
firms into the market. provides essential services, regulates industries, requirements as outputs and outcomes. Here, it is on the same page, reducing confusion and
 Price maker: A monopoly has the ability to set and implements social welfare programs. would be a team or group of professionals located misunderstandings.
prices due to its market power. It can Example: Sweden is often cited as an example of a in different places but working on one project. The 5. Improving efficiency: Effective project
choose the price and quantity of output to mixed economy. The government in Sweden time zones and cities might differ, and the management involves defining and refining
maximize its profits. provides universal healthcare, education, and responsibilities too would be different, but the processes that can improve efficiency and
 Lack of substitutes: Since there are no close social security programs. It also heavily regulates outcome targeted would be unified. Oftentimes, a productivity. This helps to reduce waste,
substitutes available, consumers have labor markets, sets minimum wage standards, and remote project might have positive deliverables, or reduce costs, and improve overall project
limited alternatives and must accept the maintains a comprehensive welfare system. it might not have anything to do with bottom lines, outcomes.
monopolist's price and product. and yet that project would be commissioned. An
2. Monopolistic Competition: Monopolistic  Explain why a monopolist does not fix his important example of a project which is in remote  Project life Cycle
competition is a market structure characterized by price as high as he may choose although he is mode is a research project. [Conceptualization→Planning→Execution→
a large number of sellers offering differentiated free to do so. ❖ There are criteria for a project to be effectively Termination]
products. Key features include: A monopolist is a price-maker, i.e., he sets his own executed. These are specific, measurable, The project life cycle is the sequence of phases
 Differentiated products: Firms in monopolistic price of product but if he increases the price, he achievable, relevant, and time-bound: that a project goes through from its initiation to its
competition sell products that are differentiated in can sell less units and he can sell more units at a 1. Specific: A project has to be planned such that completion. The most used project life cycle
some way, whether through branding, quality, lower price because monopoly is a single firm every detail is specific and goal- oriented. A consists of four phases:
location, or other factors. This differentiation market and therefore there is no difference project's structure, goals, objectives, milestones, 1. Conceptualization: This is the initial phase
creates product diversity and allows firms to have between firm and market and the monopolist, and costs have to be laid out very clearly from the where the project is conceived, and the idea is
some control over price. therefore, faces a downward - sloping market start. For this, the members of the project team, as developed. It involves identifying the project's
 Easy entry and exit: Unlike a monopoly, demand - curve which is quite steep because the well as external consultants, should give active goals and objectives, stakeholders, and feasibility.
monopolistic competition allows relatively easy product of the monopolist has high inelastic price - input. There has to be detailed planning and The feasibility study considers technical,
entry and exit of firms in the market. New firms can elasticity of demand because it has no else reporting with a command structure, list of economic, operational, and scheduling aspects to
enter and compete with existing ones. substitutes in the market. Therefore, the personnel, communication channels, and costing determine if the project is worth pursuing.
 Non-price competition: Firms in monopolistic monopolist does not fix the price as high as he may drawn out in detail. Project ownership, and the 2. Planning: This phase involves defining the scope
competition engage in non-price competition, such choose to avoid decrease in rates output. work assigned to various resources, too, have to be of the project, creating a work breakdown
as advertising, product differentiation, and regularly reviewed. Regularly scheduled review structure, developing a detailed project plan, and
marketing strategies, to attract customers and meetings have to be called to measure milestones. identifying the necessary resources required to
build brand loyalty. 2. Measurable: The project's objectives and complete the project. This phase also involves
 Limited market power: Each firm in monopolistic (Unit – 4: Concept of Project) achievements have to be measurable in terms of setting up project controls to monitor and manage
competition has limited market power due to the  Define a Project. benefits gained/ or to be gained by the sponsor the project throughout its life cycle.
presence of close substitutes. However, they have A project is a combination of set objectives to be organization. It is not necessary that it is limited to 3. Execution: The execution phase involves
some control over price and can set prices higher accomplished within a fixed period. They are an monetary terms alone. It could also mean an carrying out the activities defined in the project
than marginal cost in the short run. excellent opportunity to organize your business increase in the company's goodwill standing or plan. This involves implementing the project plan,
3. Oligopoly: An oligopoly is a market structure and non-business goals efficiently. The changes promotion of its status in the business arena etc., managing the resources, and carrying out the
characterized by a small number of large firms made in the project completion process are 3. Achievable: The goals and objectives of a activities to complete the project. During this
dominating the market. Key features include: expected to perform better. When you work on an project have to be plausible and achievable. If a phase, it is essential to manage and monitor the
 Few large firms: The market is controlled by a office project, it requires experts from different project is ambitious but unachievable, then it will project performance and make any necessary
small number of large firms, typically less than a departments to come together. When you are have negative ramifications project team's morale adjustments to ensure that the project stays on
handful. These firms may account for a significant working on a school / college project, you hitting a low, budget overrun, extended timeframe, track.
portion of the market share. collaborate with fellow students to meet the and elusive deliverables. 4. Termination: This is the final phase of the
 Interdependence: Due to the small number of objective. While working on a personal project, you 4. Relevant: The project should have an outline project life cycle, where the project is closed down.
firms, each firm's actions and decisions have a will be coordinating with your family or friends to with all the relevant details on paper. This includes It involves completing all remaining activities, such
significant impact on the behavior and profitability accomplish the set objectives. Therefore, we can handling costs, increasing operational efficiency, as finalizing the project documentation, releasing
of other firms in the market. There is a high degree say one individual can own that project, but it is a or any other detail in planning a project that might the resources, and conducting a post-project
of interdependence among oligopolistic firms. group activity. These people are known as project ultimately affect its efficacy and purpose. review to evaluate the project's success.
 Barriers to entry: Oligopolies often have barriers managers. 5. Time bound: A timeframe is what makes a
to entry, which can be in the form of economies of project relevant to the objectives of the
scale, high initial investment requirements, or  Describe the Types of projects. What are the organization. This means that it should have a start
strategic actions by existing firms to deter new general characteristics of a project? date and a finishing line to reach within the span of (Unit – 5: Feasibility Analysis of a Project)
entrants. The nature of a project, its features, time required by the client/sponsor. Therefore, its  Economic and Market analysis
 Price rigidity: Oligopolistic firms may engage in characteristics, and size decide the course of planning should be such so as to have no detours Economic and market analysis involves examining
price rigidity, where prices remain relatively stable action for its fulfillment. It is the customer, and changes. It will not be able to keep to its various factors that affect the performance of
due to the fear of price wars or retaliation from contractor, and project management team that has committed schedule if the project has to economies and financial markets. Here are some
competitors. Non-price competition, such as to work in tandem with each other to see the incorporate unforeseen changes. key components typically considered in economic
advertising and product differentiation, is common project to its desired conclusion. The customer and market analysis:
in oligopolies. specifications and the consequent management 1. Macroeconomic Indicators: Analyzing indicators
strategy for every project and its type. There are such as gross domestic product (GDP), inflation
rates, unemployment rates, interest rates, and 3) What it Surplu Point of no profit These risks can affect project timelines, costs,  What's are the different types of feasibility
consumer sentiment provides insights into the represents s from no loss (Break legal compliance, and stakeholder relationships. study that entrepreneurs should undertake ?
overall health and performance of an economy. ? the even point). 4. Environmental Risks: Environmental risks arise Entrepreneurs often conduct feasibility studies to
2. Industry Analysis: Assessing specific industries project from the potential impacts of the project on the assess the viability and potential success of their
helps understand their current state, growth . environment, ecosystems, and natural resources. business ideas. The specific types of feasibility
potential, competitive landscape, and regulatory 4) It It does not help in These risks can include issues such as pollution, studies can vary depending on the nature of the
environment. Factors such as technological Decision makes decision making habitat destruction, deforestation, water scarcity, business and its objectives. Here are some
making decisio
advancements, market trends, and barriers to climate change, or violations of environmental common types of feasibility studies that
n
entry are considered. regulations. Failure to address environmental risks entrepreneurs may undertake:
making
3. Market Segmentation: Examining different can lead to reputational damage, legal liabilities, 1) Market Feasibility Study: This study examines
easy.
market segments, such as stocks, bonds, and delays in project approvals. the potential demand, market size, target
5) Rate for Cost of Internal rate of
commodities, and currencies, helps identify reinvestme capital return In addition to these specific types of risks, audience, and competition for a product or service.
investment opportunities and assess risk levels nt of rate projects are also subject to general uncertainties, It helps entrepreneurs understand if there is a
associated with each segment. intermedia which include factors that are difficult to predict or viable market for their offering and if they can
4. Financial Statement Analysis: Evaluating te cash quantify. effectively compete.
financial statements of companies and flows 2) Technical Feasibility Study: This study
organizations provides insights into their financial 6) Will not Will show  Evaluation of the financial health of a evaluates the technical aspects of implementing a
health, profitability, liquidity, and solvency. Variation in affect negative multiple project– business idea. It assesses factors such as
Common financial ratios such as return on the cash NPV IRR Understanding the basic concept of Fixed & technology requirements, infrastructure,
investment (ROI), earnings per share (EPS), and outflow Working Capital, Debt & Equity, Shares, resources, and technical capabilities needed to
debt-to-equity ratio are analyzed. timing Debentures etc., and different financial ratios develop and deliver the product or service.
5. Risk Assessment: Assessing various types of like Liquidity Ratios, Activity Ratios, Debt- 3) Financial Feasibility Study: This study focuses
 What are the adverse effects of the project equity ratio & Profitability Ratio. on the financial viability of the business idea. It
risks, including market risk, credit risk, liquidity
on the environment? To evaluate the financial health of a project, it's includes analyzing costs, revenue projections,
risk, and geopolitical risk, is crucial in
Here are some common areas of consideration important to understand key concepts such as potential profitability, and return on investment
understanding the potential impact on investments
when evaluating the environmental impact of a fixed capital, working capital, debt, equity, shares, (ROI). Financial feasibility studies help
and economic stability.
project: debentures, and financial ratios. Here's a basic entrepreneurs determine if their business can
6. Global and Political Factors: Analyzing
1. Air Quality: The project may release pollutants, explanation of these concepts and some common generate sufficient financial returns.
international events, trade policies, political
emissions, or dust that can degrade air quality and financial ratios used for evaluation: 4) Operational Feasibility Study: This study
stability, and geopolitical tensions helps evaluate
contribute to air pollution. This can have health 1. Fixed Capital: Fixed capital represents the long- examines the operational aspects of the business
how these factors may influence markets and
implications for both humans and ecosystems. term investment in assets required for the project, idea. It assesses factors such as location, facilities,
economies.
2. Water Resources: The project may have an such as land, buildings, machinery, and staffing requirements, production processes, and
7. Technical Analysis: Utilizing charts, patterns,
impact on water bodies, such as rivers, lakes, or equipment. It is the initial capital invested in the logistical considerations. The goal is to determine
and statistical indicators to analyze historical price
groundwater sources. It's important to evaluate project and is not expected to be consumed during if the business idea can be effectively implemented
and volume data helps identify potential trends
potential water pollution, changes in water normal operations. and operated.
and support investment decisions.
availability, and impacts on aquatic ecosystems. 2. Working Capital: Working capital refers to the 5) Legal and Regulatory Feasibility Study: This
3. Soil Quality: Construction activities or the capital required to finance the day-to-day
 Write short note on: 1. Payback period study evaluates the legal and regulatory
release of contaminants can affect soil quality, operations of the project. It represents the funds environment related to the business idea. It
method, 2. Net Present Value method, 3.
leading to soil erosion, contamination, or needed to cover short-term expenses such as raw identifies any legal requirements, permits,
Internal Rate of Return method.
degradation of agricultural land. This can impact materials, inventory, salaries, and other operating licenses, or compliance issues that need to be
1. Payback Period Method: The payback period
ecosystems, food production, and vegetation. costs. Working capital is calculated by subtracting addressed. Entrepreneurs must ensure that their
method determines the time required to recover
4. Biodiversity and Ecosystems: Projects can current liabilities from current assets. business idea aligns with applicable laws and
the initial investment in a project. It focuses on the
disrupt habitats, destroy biodiversity-rich areas, or 3. Debt and Equity: Debt and equity are two main regulations.
cash inflows and calculates the time it takes for the
introduce invasive species. It's crucial to assess sources of financing for a project. Debt refers to It's important to note that not all feasibility
cumulative cash flows to equal or exceed the initial
potential impacts on endangered species, funds borrowed from lenders or financial
investment. The decision rule is to accept projects studies may be necessary for every business idea.
protected areas, and ecosystems' overall balance institutions, which need to be repaid with interest The specific studies undertaken depend on the
with shorter payback periods, as they are
and resilience. over a specified period. Equity represents the nature of the venture and the potential risks and
considered less risky. However, this method
5. Noise and Vibrations: Construction activities, ownership interest in the project and is provided by opportunities associated with it. Entrepreneurs
doesn't consider the time value of money and
machinery, or increased traffic can generate noise shareholders who invest their own money in should carefully evaluate which feasibility studies
ignores cash flows beyond the payback period.
and vibrations, affecting human communities, exchange for shares. are most relevant to their specific business idea.
2. Net Present Value (NPV) Method: The NPV
wildlife, and sensitive ecosystems. 4. Shares: Shares represent ownership units in a
method considers the time value of money and
6. Waste Generation: The project may produce company or project.  What is social cost benefit analysis ?
measures the profitability of an investment by
construction waste, hazardous materials, or Shareholders purchase shares and become partial
calculating the present value of all expected cash Social cost-benefit analysis (SCBA) is a
increased solid waste. Proper management and owners, entitled to a share of the profits
inflows and outflows. It discounts future cash methodology used to evaluate the economic and
disposal techniques should be assessed to (dividends) and voting rights in the company's social impacts of public projects, policies, or
flows to their present value using a predetermined
mitigate potential adverse impacts. decision-making processes. interventions. It provides a framework for
discount rate (the cost of capital or required rate of
7. Visual Impact: Large-scale projects can alter 5. Debentures: Debentures are debt instruments assessing the costs and benefits associated with a
return). The decision rule is to accept projects with
the visual landscape, affecting the aesthetics of an issued by companies to raise funds from investors. particular decision or action and helps
positive NPV, as they are expected to generate
area and potentially impacting cultural or historical They represent a loan taken by the company and policymakers make informed choices by
more cash inflows than the initial investment. In
sites. carry a fixed interest rate. Debenture holders are
other words, if the NPV is greater than zero, the comparing the overall social welfare implications.
During an environmental impact study, it's creditors and have a claim on the company's
project is considered financially viable. The primary objective of social cost-benefit
important to follow relevant regulations, involve assets in case of default. analysis is to determine whether the benefits of a
3. Internal Rate of Return (IRR) Method: The IRR
stakeholders, gather scientific data, and propose ❖ Now, let's discuss some common financial project or policy outweigh its costs and whether it
method is another technique that considers the
mitigation measures to minimize adverse impacts. ratios used to evaluate the financial health of a leads to a net improvement in social welfare. It
time value of money. It calculates the discount rate
The study helps decision-makers make informed project: involves quantifying both the tangible and
at which the present value of cash inflows equals
choices by weighing the potential environmental 1. Liquidity Ratios: These ratios measure the intangible costs and benefits, which can include
the present value of cash outflows, resulting in an
consequences against the project's benefits, and it project's ability to meet short-term obligations. economic, environmental, and social factors.
IRR percentage. The decision rule is to accept
may also lead to modifications or alternative Common liquidity ratios include the current ratio
projects with an IRR that exceeds the required rate ❖ Here are the steps involved in social cost-
project designs to mitigate the identified impacts. (current assets divided by current liabilities) and
of return or cost of capital. In other words, if the IRR benefit analysis:
is greater than the discount rate, the project is the quick ratio (current assets minus inventory, 1) Identify and define the project: Clearly specify
 Project risk and uncertainty: Technical, divided by current liabilities).
considered financially viable. The IRR method the project or policy under consideration, including
economical, socio-political, and 2. Activity Ratios: Also known as asset
helps determine the rate of return generated by the its objectives, scope, and timeframe.
environmental risks.
project. management ratios, these ratios assess how 2) Identify stakeholders: Determine the individuals
Project risk and uncertainty encompass various efficiently a project utilizes its assets to generate or groups affected by the project or policy,
factors that can affect the successful execution sales. Examples include inventory turnover ratio,
 Difference between NPV & IRR. including both direct and indirect stakeholders.
and outcome of a project. Here are some common accounts receivable turnover ratio, and fixed asset
Basis for NPV IRR 3) Identify costs and benefits: Identify and measure
types of risks associated with projects: turnover ratio.
Compariso the costs and benefits associated with the project.
1. Technical Risks: These risks arise from 3. Debt-Equity Ratio: This ratio compares the
n Costs may include construction costs, operational
technological factors and may include issues proportion of debt and equity financing in a project.
1) Meaning The IRR is described costs, and any negative impacts on the
total of as a rate at which related to the project's design, development, It is calculated by dividing total debt by total equity. environment or society. Benefits can include
all the the sum of implementation, or operation. Technical risks can A higher debt-equity ratio indicates higher financial economic gains, improved quality of life,
present discounted cash include challenges with new technologies, leverage and potential higher risk. environmental conservation, and other positive
values inflows equates complexity of the project, compatibility issues, or 4. Profitability Ratios: These ratios measure the impacts.
of cash discounted cash potential technical failures. project's ability to generate profits. Common 4) Assign monetary values: Assign monetary
flows outflows. 2. Economic Risks: Economic risks pertain to profitability ratios include gross profit margin (gross values to both the costs and benefits to facilitate
(both factors that can impact the project's financial profit divided by sales), net profit margin (net profit comparison. This may involve estimating market
positiv viability and economic feasibility. They may include
e and divided by sales), and return on investment (net prices for some factors and using valuation
fluctuations in market conditions, currency profit divided by total investment).
negativ techniques for intangible factors.
exchange rates, inflation, interest rates, or changes These are just a few examples of financial ratios
e) of a 5) Discounting and time adjustment: Adjust the
in demand and supply dynamics. Economic risks used to assess the financial health of a project.
project values of costs and benefits that occur over time
can affect project costs, revenues, profitability, Each ratio provides different insights into various
is using discount rates to reflect the time preferences
known and overall financial performance. aspects of the project's performance and financial of society.
as Net 3. Socio-Political Risks: Socio-political risks position. It's important to analyze multiple ratios in 6) Calculate net present value: Calculate the net
Presen stem from the social and political environment in conjunction with other financial and non-financial present value by subtracting the discounted costs
t Value which the project operates. They include factors indicators to get a comprehensive understanding of from the discounted benefits. A positive net
or NPV. such as regulatory changes, legal and compliance the project's financial health. present value indicates that the benefits outweigh
2) Absolu Percentage issues, government policies, social acceptance,
the costs.
Expressed te terms. labor unrest, political instability, or conflicts.
in terms.
7) Sensitivity analysis: Conduct sensitivity 4) Decision-Making Support: The information and  PERT Charts reinforce sequencing (bi-
analysis to test the robustness of the results by analysis provided in a pre-feasibility study offer directional).
varying key assumptions or parameters to account valuable insights to stakeholders and decision-  Locates orphan tasks.
for uncertainties. makers. It enables them to make informed choices  Promotes fixing obvious missing predecessors
8) Decision-making: Evaluate the results and about whether to proceed with the project, modify and successors.
consider additional factors such as equity, its scope, seek additional funding, or abandon it  Identifies wrong owners & process groups.
distributional impacts, and political feasibility to altogether. The study provides a solid foundation  Opportunities to shorten timelines.
inform the decision-making process. for decision-making by presenting a
Social cost-benefit analysis provides a comprehensive evaluation of the project's  Distinguished between PERT & CPM.
systematic and rigorous approach for decision- potential benefits and drawbacks. PERT CPM
makers to assess the impacts of projects or 5) Project Planning and Design: A pre-feasibility 1. PERT is that CPM is that
policies on society as a whole. By considering both study lays the groundwork for subsequent project technique of technique of project
the economic and social dimensions, it helps planning and design activities. It provides a project management which
ensure that resources are allocated efficiently and framework for defining project objectives, scope, management is used to manage
that policies are designed to maximize overall and deliverables. The study's findings and which is only certain (i.e., time
social welfare. recommendations guide the development of a used to is known) activities of
more comprehensive feasibility study, including manage any project.
uncertain
 What's do you mean by techno economics detailed project plans, technical specifications,
(i.e., time is
project appraisal ? financial models, and implementation strategies.
not known)
Techno-economic project appraisal refers to the In summary, a pre-feasibility study plays a vital activities of
evaluation and analysis of a project from both role in project development by providing an initial any project.
technological and economic perspectives. It assessment of a project's viability, optimizing costs 2. It is event It is activity oriented
involves assessing the feasibility and viability of a and resources, identifying and mitigating risks, oriented technique which
project by considering its technical aspects, such supporting decision-making, facilitating technique means that network
as the technology employed, the equipment and stakeholder engagement, and guiding subsequent which is constructed on the
infrastructure required, and the operational planning and design activities. It serves as a crucial means that basis of activities.
processes involved, as well as its economic tool for evaluating project ideas and ensuring that network is
aspects, such as the costs, revenues, profitability, resources are allocated to the most promising constructed
and potential risks and benefits. initiatives. on the basis
Techno-economic project appraisal typically of event.
includes the following key steps: 3. It is a It is a deterministic
probability model.
model.
1. Technological Assessment: This involves
4. It majorly It majorly focuses on
evaluating the technical aspects of the project, (Unit – 6: Project Administration)
focuses on Time-cost trade off
such as the design, development, and  Describe about the terms CPM and PERT: time as as minimizing cost is
implementation of the proposed technology or CPM [Critical Path Method]: meeting time more important.
solution. It includes assessing the technical In 1957, DuPont developed a project target or
feasibility, reliability, scalability, and compatibility management method designed to address the estimation of
with existing systems. challenge of shutting down chemical plants for percent
2. Economic Evaluation: This step involves maintenance and then restarting the plants once completion
analyzing the economic viability of the project. It the maintenance had been completed. Given the is more
includes estimating the initial investment costs, complexity of the process, they developed the important.
operational expenses, revenue generation Critical Path Method (CPM) for managing such 5. It is It is appropriate for
potential, and financial returns over the project's projects. appropriate reasonable time
CPM provides the following benefits: for high estimation.
lifecycle. Economic evaluation also takes into
precision
account factors like market demand, competition,  Provides a graphical view of the project.
time
pricing, and potential risks or uncertainties.  Predicts the time required to complete the
estimation.
3. Cost-Benefit Analysis: This analysis compares project.
6. It has Non- It has repetitive
the costs associated with the project  Shows which activities are critical to maintaining repetitive nature of job.
implementation to the anticipated benefits. It the schedule and which are not. nature of job.
helps in determining whether the project is  CPM models the activities and events of a project 7. There is no There may be
economically justifiable and if the expected as a network. Activities are depicted as nodes on chance of crashing because of
benefits outweigh the costs. the network and events that signify the beginning or crashing as certain time
4. Risk Assessment: This step involves identifying ending of activities are depicted as arcs or lines there is no boundation.
and evaluating potential risks and uncertainties between the nodes. certainty of
associated with the project. It includes assessing Steps in CPM Project Planning: time.
factors like market risks, technological risks, 1. Specify the individual activities. 8. It doesn’t It uses dummy
financial risks, and regulatory risks. Risk 2. Determine the sequence of those activities. use any activities for
assessment helps in understanding the potential 3. Draw a network diagram. dummy representing
4. Estimate the completion time for each activity. activities. sequence of
impact of risks on the projects.
activities.
5. Identify the critical path (longest path through
9. It is suitable It is suitable for
 Discuss the significance of pre-feasibility the network)
for projects construction projects
study in a project . 6. Update the CPM diagram as the project
which
A pre-feasibility study is an important step in the progresses.
required
project development process. It serves as an initial PERT: The Program Evaluation and Review research and
assessment to determine the viability and potential Technique (PERT) is a network model that allows development
of a project before committing significant for randomness in activity completion times. PERT
resources and effort into its full feasibility study. was developed in the late 1950's for the U.S.  Mention what is the characteristics of
Here are some key significances of conducting a Navy's Polaris project having thousands of Gantt Chart Basics?
pre-feasibility study: contractors. It has the potential to reduce both the  In Gantt chart, each task is displayed by one row.
1) Project Viability Assessment: The primary time and cost required to complete a project.  Dates are displayed in incremental order like
purpose of a pre-feasibility study is to assess the In a project, an activity is a task that must be days, weeks or months as per the total length of the
viability of a project. It helps determine whether a performed and an event is a milestone marking the project.
project is worth pursuing further by evaluating its completion of one or more activities. Before an  For each task expected, time is displayed by a
technical, financial, economic, legal, and activity can begin, all of its predecessor activities horizontal bar whose left end indicates the
operational aspects. This assessment provides must be completed. Project network models estimated beginning of the task and right end
valuable insights into the potential risks, represent activities and milestones by arcs and indicates the estimated completion date
challenges, and opportunities associated with the nodes. PERT originally was an activity on arc  Task may run parallel, sequentially or
project. network, in which the activities are represented on overlapping.
2) Cost and Resource Optimization: Conducting the lines and milestones on the nodes. Over time,  The chart is represented in the bar formation to a
a pre-feasibility study allows for early identification some people began to use PERT as an activity on length proportional to the fraction of the work that
of potential cost implications and resource node network. For this discussion, we will use the has been completed.
requirements. It helps in estimating the initial original form of activity on arc.  On the left of the line, you will see the completed
investment needed, operating costs, and the tasks.
potential return on investment. By identifying cost-  What are the utility of PERT Chart?  Future tasks line lies to the right of the line.
saving measures and optimizing resource 1. PERT stands for Program Evaluation and Review  Current task are cross the line and are behind
allocation, the study helps in improving the Technique schedule when filled in section is on the left of the
project's efficiency and financial viability. 2. A PERT chart is a project management tool used line and ahead of schedule when it is right of the
3) Risk Identification and Mitigation: Pre- to schedule, organize, and coordinate tasks within line.
feasibility studies enable the identification and a project
assessment of potential risks and challenges 3. PERTS become very complex very quickly, so the
associated with the project. These risks can key to usage is to plan and manage small chunks of
include technical feasibility, market conditions, work. ENGINEERING ECONOMICS & PROJECT
regulatory compliance, environmental impact, and In conclusion it is presented as: MANAGEMENT (6th SEM)
more. By recognizing these risks early on,  WBS Charts aids the team to visualize the plan. Made by : S.S.
appropriate mitigation strategies can be  Reduces inconsistencies in the project plan.
developed, reducing the likelihood of project failure  Reduces duplicated tasks.
or unexpected setbacks.  Intuitive