Friday, August 31, 2012

Limitations Of Law Of Equi Marginal Utility

Limitations Of Law Of Equi Marginal Utility
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Limitations of the Law of Equi marginal Utility

The Law of Equi - marginal utility is a mere statement of tendency. The actual expenditures of the consumer may not conform to this Law of Equi marginal Utility because of the following reasons.
Following are some imoportant Limitations of the Law of Equi marginal Utility:

1)  Careful Calculations:
This law of Equi marginal Utility involves very careful calculations of the expected satisfaction and its comparison with the amount of money spend on various goods. It also involves a careful calculation of the utility derived by spending the same amount in some other direction. In actual practice there is not much conscious calculation and careful weighing of utilities as much of our expenditure is governed by habits and customs.

2)  Rational Behavior Of Customer:
It can not be expected of the consumer to act rationally. Only in case of big expenditure a rational consumer goes through certain thinking and his expenditure may roughly conform to this principle. This Law of Equi marginal Utility however, does not apply in case of small purchases.

3)  Ignorance Of Consumer
Ignorance of the consumer imposes another limitation. The consumer may not be aware of the other useful alternatives. This makes this Law of Equi marginal Utility inoperative.

4)  Customs And Fashions:
Peoples are sometimes slaves of customs or fashions, and are incapable of rational consumption. They are thus deprived of having maximum utility.

5)  Budget Period:
Another limitation arises from the fact that there is no definite budget period in case of individual.

6)  Indivisibility Of Commodities:
Indivisibility of certain commodities also makes the operation of this Law of Equi marginal Utility difficult.

7)  This principle is based on the ordinal measurement of utility and the constancy of the marginal utility of the money. These assumptions have been discarded by modern economists.

Wednesday, August 29, 2012

Globalization Of The Company Mission:

Globalization of the company Mission:

Few strategic decisions bring about a more radical departure from the existing direction and operations of a firm than the decision to expand globally. Globalization subjects a firm to a radically different set of environmentally determined opportunities, constraints and risks. To prevent these external factors from dictating the firm's direction, top management must reassess the firm's fundamental purpose, philosophy and strategic intentions before globalization in order to ensure their continuation as decision criteria in proactive planning.

Tuesday, August 21, 2012

Components Of The Company Mission.

What are the Components of the company Mission.

There are commonly six most popular Components of the company Mission.
Let us discuss them one by one:

1) Basic product or Services, Primary Market:
What is our basic product or service, mission should give a hint about product or services. Mission should also tell us in which market we want to sell our product or service.

2) Principal Technology:
Mission should tell us about what type of principal technology is being used for production rendering of services by organization.
Three indispensable components of the mission statements are specification of the basic product or services specification of the primary market and specification of the principal technology for production or delivery.

3) Company Goals:
Three economic goals guide the strategic direction of almost every business organization. Whether or not the mission statement explicitly states these goals, it reflects the firms intention to secure survival through growth and profitability.
There are three main types of company goals.

  • Survival
  • Growth
  • Profitability
  • Survival
A firm that is unable to survive will be incapable of satisfying the aims of any of its stakeholders. Unfortunately the goal of survival like the goals of growth and profitability, often is taken for granted to such extent that is neglected as a principal criterion strategic decision making.
  • Growth
A firms growth is tied inextricably to its survival and profitability. In this context, the meaning of growth must be broadly defined. Although product impact market studies have shown that growth in market share is correlated with profitability other important forms of growth do exist.
  • Profitability:
Profitability is the mainstay goal of a business organization. No matter how profit is measured or defined, profit over the long term is the clearest indication of firms ability to satisfy the principal claims and desires of employees and stakeholders.

4) Company Philosophy:
Basic beliefs and values. The statement of company philosophy often called the company creed, usually accompanies or appears within the mission statement. It reflects or specifies the basic beliefs, values, aspirations and philosophical priories to which strategic decision makers are committed in managing the company. Fortunately the philosophy varies little from one firm to another.

5) Public Image:
Both present and potential customers attribute certain qualities to particular business. And Johnson & Johnson make safe product, cross pen makes high quality writing instruments. On the other hand a negative public image often permits firms reemphasize the beneficial aspects of their mission.

6) Company Self Concept:
A major determinant of a firm's success is the extent to which the firm can relate functionally to its external environment. To achieve its proper place in a competitive situation firm realistically must evaluate its competitive strengths and weaknesses. This idea the firm must know itself is the essence of the company self concept. Both individuals and firms have crucial need to know themselves.

Monday, August 20, 2012

Firms Competitive Strategies In Foreign Markets.

Competitive strategies for firms in foreign Markets.
Competitive Strategies for firms that are attempting to move toward globalization can be categorized by degree of complexity of each foreign market being considered and by the diversity in a company product line.

Niche Market Exporting:
The primary niche market approach for the company that wants to export is to modify select product performance or measurement characteristics to meet special foreign demands. Combining product criteria from the both the U.S. and the foreign markets can be slow and tedious.
There are however a number of expansion techniques and Competitive Strategies that provide the US firm with the know how to exploit opportunities in the new environment.
For example copying product innovations in countries where patent protection is not emphasized and utilizing no equity contractual agreements with a foreign partner can assist in rapid product innovation.
Joint venture:
As the multinational Competitive strategies of US firms nature, most will include some from of joint venture with a target nation firms, AT&T followed this option in its strategy to produce its own personal computer by entering into several joint ventures with European producers to acquire the required technology and position itself for European expansion.

  • Pool of Capital
  • Patent
  • Trade mark
  • Management
  • Production on Marketing Equipment.
Foreign Branch:
This is also include in Competitive Strategies of a firms. A foreign branch is an extension of the company in its foreign market a separately located strategic business unit directly responsible for fulfilling the operational duties assigned to it by corporate management. including sales customers services and physical distribution.

Licensing/ Contract Manufacturing:
When a firm has right to start a specific business and a company sign a contract of manufacturing that product or a service in a foreign national market is called licensing.
Two major problems exist with licensing. One is the possibility that the foreign partner will gain the experience and evolve into major competitors after the contract expires. The experience of the some US electronics firms with Japanese companies shows that licensing gain the potential to become powerful rivals. The other potential problem stems from the control that the licensor forfeits on production, marketing and general distribution of its products.

Outlet controlled by the head office. A special form of licensing is franchising which allow the franchise to all a highly publicized product or services using the parent's brand name or trade mark carefully producers and marketing strategies.

Wholly owned Subsidiaries:
Parent company and Daughter company it require lot of investment parent company do to gain control and management efficiencies.
Wholly owned subsidiaries are considered by companies that are willing and able to make up the highest investment commitment to he foreign market. These companies insist on full ownership for reasons of control and managerial efficiency. Policy decision about local product lines, expansion, profits and dividends typically remain with the U.S senior managers.

Long Term Objectives Formulation

Long Term Objectives Formulation
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Formulating Long Term Objective.

Introduction Of Long term Objective.

Long term objectives means end results which a company wants to achieve over a long period of time.

Formulation of a long term objectives:
Formulating long term objectives is basically deciding that where we want to see our company in next 5 - years or 7 years or 10 - years.

Achievement of a Long term Objectives:
To achieve long term objective strategic planners commonly establish long term objectives in seven areas.

1) Profitability:
The ability of any firm to operate in the long run depends on attaining an acceptable level of profit.

2) Productivity:
Strategic managers constantly try to increase the productivity of their systems. firms that can improve their input and output relationship normally increase profitability.

3) Competitive position:
one measure of corporate success in relative dominance in the market place. large firms commonly establish Long term objectives in terms of competitive position often using total sales or market shares as measures of their competitive position.

4) Employees Development:
Employees value education and training in part because they lead to increase compensation and job security. providing such opportunities often increase productivity and decrease turnover. Therefore strategic decision makers frequently include employees development objectives in their run plans.

5) Employee relation:
Whether or not they are bound by union contract, firms activity seek good employee relationship. in fact proactive steps in anticipation of employee need and expectations are characteristic of strategic managers.

6) Technological Leadership:
Firms must decide whether to lead or follow in the market place. Either approach can be successful but each can requires a different strategic posture. Therefore many firms state objective with regard to technological leadership.

7) Public Responsibility:
Managers recognize their responsibilities to their customers and to society at large. Many firms seek to exceed government requirements.

Saturday, August 18, 2012

Practical Importance Of The Law Of Diminishing Marginal Utility:

Practical Importance Of The Law Of Diminishing Marginal Utility:
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Practical importance of the law Of Diminishing Marginal Utility:

Importance of the law Of Diminishing Marginal Utility

The law of diminishing marginal utility has great practical importance in economics.

Let us explain the importance of the law Of Diminishing Marginal Utility:

1) The law of Marginal Utility and the Law of Demand:

The law of Marginal Utility and the Law of Demand are closely related with each other. The law of diminishing marginal utility is the base of the law of demand. According to law of diminishing marginal utility, the more we have of a good, the less we want additional increment of it. So as a person gets more and more of a particular commodity, the marginal utility of the successive unit begins to diminish. So every consumer while buying a particular commodity compares the marginal utility of a commodity and the price of the commodity that he has to pay. If the marginal utility is higher than the price, he purchases the commodity. As he buys more and more, the marginal utility begins to diminish. Then he pays fewer amounts for the successive units. So it is clear that the law of diminishing marginal utility and the law of demand are closely related.

2) Consumer Surplus:
The theory of consumer surplus is also based on this law of Diminishing Marginal Utility. A consumer while purchasing the commodity compares the utility of the commodity with that of price which he has to pay. In most of the cases he will to pay more than what he actually pays. The excess of the price which he would be willing to pay rather than to go with out the thing over that which he actually does pay is the economic measure of this surplus satisfaction.

3) Distribution of Expenditure:
A consumer in order to get the maximum satisfaction from his scarce income, distributes his income on goods and services in such a way that the marginal utility from all the uses are the same. Here, again the concept of marginal utility helps the consumer in arranging his scale of preferences for the commodities.

4) System of Taxation:
The law of diminishing marginal utility also helps in making of a tax policy. A finance minister knowing this fact that the marginal utility of money to a rich man is low and a poor man high, basis the system of taxation in such a way that rich persons are taxed at a progressive rate. The system of modern taxation, is therefore, based on the law of diminishing marginal utility.

Assumptions and Limitations of the Law of Diminishing Marginal Utility:

Assumptions and Limitations of the Law of Diminishing Marginal Utility:
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Assumptions and Limitations of the Law of Diminishing Marginal Utility:
Here we briefly study the Assumptions and Limitations of the Law of Diminishing Marginal Utility.

Let us discuss them one by one.

Assumption of the Law of Diminishing Marginal Utility:

This law of diminishing marginal utility will be true under the following Assumptions:

1) Consumption to be continuous:
It is assumed that the consumption of commodity should be continuous. If there is interval between the consumption of the same two units of the commodity, the law of diminishing marginal utility may not hold good.

2) Reasonable units:
The 2nd assumption of the law of diminishing marginal utility is that the commodity consumed is taken as suitable and reasonable units. If units are too small, then the marginal utility instead of falling may increase up to a few minutes.

3) Character of the consumer does not change:
The law of diminishing marginal utility holds true if there is no change in the character of the consumer. For example a consumer develops a taste for tea; the additional units of tea may increase the marginal utility to an addict.

4) No change in Fashion or Taste:
If there is a sudden change in fashion, custom, or taste of a consumer, it can make the law of diminishing marginal utility inoperative.

5) Change of Income:
If there is a change in the income of the consumer, the law may not operate.

Limitations of the law of Diminishing Marginal utility:
Following are some limitations of the law of Diminishing marginal utility.

1) Knowledge:
The desire to acquire knowledge increase as a person gets the education.

2) Wealth:
The law of diminishing marginal utility does not affect the stock of wealth, because a person who has a large amount of wealth, his desire to have more wealth increases as the stock of wealth increases.

Presentataion Of The Law of diminishing marginal utility

Presentataion Of The Law of diminishing marginal utility
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

Law of Diminishing Marginal Utility:

Explanation of the Law of diminishing marginal utility with the help of Schedule and Diagram.

Introduction of the Law of diminishing marginal utility:
The concept of diminishing marginal utility was introduced in 1871. It is a common experience of every consumer that as utility goes on diminishing. This tendency on the part of marginal utility to diminish with every increase in the stock of a commodity is called the law of diminishing marginal utility.

Statement of the Law of diminishing marginal utility:
Marshall has stated this law as,

"The additional benefit which a person derives from an increase of his stock of a commodity diminishes with every increase in the stock that he already has".

Explanation of the Law of diminishing marginal utility
We explain the law of diminishing marginal utility by a very simple example. Suppose a man is very thirsty. He starts drinking glasses of water. The first glass of water gives him greater utility. When he takes 2nd glass of water, the utility will be less than the 1st glass. It is because the edge of his thirst has been blunted. If he drinks 3rd glass of water, the utility of the 3rd glass will be less than that of 2nd and so on..
The utility goes on diminishing with the consumption of every successive glass of water till it drops down to zero. If the consumer is forced to take a glass of water, the utility will become negative.

Explanation of the Law of diminishing marginal utility with the help of Schedule.
UnitsTotal Utility
Marginal Utility
1st Glass
06 6
2nd Glass
3rd Glass
12 2
4th Glass
5th Glass10
6th Glass06

From the table it is clear that in a given period of time, the first glass of water to a thirsty man gives 6 units of utility. When he takes 2nd glass of water, the marginal utility goes down to 4 units. When he consumed 4th glass of water the marginal utility drops down to zero and it the consumption if water is forced further from this point, the utility change into dis utility.

Explanation of the Law of diminishing marginal utility with the help of Diagram:


In this diagram we measure MU along with OY and units of commodity along with ox. The utility of 1st glass of water is 6 units, the utility of 2nd glass of water is 4 and so on. The fourth glass yields zero utility and 5th and 6th glass yields negative utility. MU is the marginal utility curve which has a left to right downward trend and shows that as consumer consumes the successive units of a commodity, MU diminishes with the addition of every unit.

What are the Qualities Of Long Term Objectives

Qualities Of Long Term Objectives
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Qualities of a Long Term Objectives:

Qualities of Long Term Objectives:

Seven criteria that should be used in preparing long term objectives are:
1) Acceptable:
Acceptability is one of the most important quality of Long term objectives.Managers are most likely to pursue objectives that are consistent with their preferences.

2) Flexible:
Long term Objectives should be adaptable to unforeseen or extraordinary changes in the firm's competitive or environmental forecasts.

3) Measurable:
Long term objectives must clearly and concrete state what will be achieved and when it will be achieved..

4) Motivating:
Studies have shown that people are most productive while objectives are set at a motivating level-one high enough to challenge but not so high as to frustrate or so low to be easily attained.

5) Suitable:
Long term Objectives must be suited to the broad aims of the firm, which are expressed in its mission statement.

6) Understandable:
Strategic managers at all levels must understand what is to achieved.

7) Achievable:
Finally Long term Objectives must be possible to achieve.

Friday, August 17, 2012

Types of Generic Strategy

Types of Generic Strategy
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Types of Generic Strategy

There are three types of Generic Strategy

1) Striving for overall low cost leadership in the industry

2) Differentiation --> change in your strategy in every year is flexible.

3) Focus in low cost + differentiation --> combination of above two points.

What is Generic Strategy?

Generic Strategy
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Generic Strategy:

Introduction of Generic strategy:

Generic Strategy means core strategy. many planning experts believe that the general philosophy of doing business declared by the firm in the mission statement must be translated into a holistic statement of the firms strategic orientation before it can be further defined in terms of a specific long term strategy.

In other words a long term grand strategy must be based on a core idea about how the firm can best compete in the market place the popular term for this core idea is generic strategy.

Definition Of The balance score card

Definition Of The balance score card:

Introduction to The balance score card:

The balance scorecard is a set of measures that are directly linked to the company's strategy. The balance scorecard allows managers to evaluate the company from four perspectives: financial performance, customer knowledge, internal business processes, learning and growth.

Definition of The balance scorecard.

By "Robert S-kaplan and David"

i) it is a set of measure or factors that are directly linked to company strategies.

2) it directs company to like its strategy with long term goals.

3) it allows managers to evaluate a company from four prospective.

  • financial performance
  • customers knowledge
  • internal business process (Operation activity)
  • learning and Growth


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