Incremental principal and decision rule

By Gaurav Gupta
 Marginal principal can be applied only where
MC and MR Can be calculated precisely. But
firms seems it difficult.
 Reason most firm produce and sell their
product in bulk.
 Incremental principal applied to business
decision which involve bulk production and a
large increase in total cost and total revenue.
The equi marginal principal

 Such an increase in total cost and total

revenue is called incremental cost
incremental revenue.
 Ex : Firm decide to a new plant to increase
production
 115 million- 100 million=15 million(I.C.)
 Incremental cost include both Fixed cost and
variable cost.
Incremental revenue

 Increase in revenue due to a business

decision.150 million-130 million=20 million
(I.R.)
 20 million-15 million = 5 million a rise of 33
%
 Firm will accept the proposal ,provided there
is no better business proposal available.
The Market system

 Itis the playing field of Managers.

 The working of market is governed by certain
laws called law of demand and supply.
 They Play a crucial role in determining the
price of a commodity and size of market.
 The market system works by two kind of
market force demand and supply force which
represent two sides of market.