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Managerial Economics

Notes ICI Paints and Market Leadership: ICI paints, which contributes 43 per cent to ICI Limited’s 850
crores turnover, has decided to gun for number one position in the Indian paints industry.
Ranking third currently, after Asian Paints and Goodlass Nerolac, it has launched a spate of
activities that emanate from a new, three-pronged strategy spearheaded by its new chief executive,
D Bhatnagar (May 98).
The three-pronged strategy encompasses expanding reach by revamping strategy network,
making marketing strategy more consumer friendly and taking initiatives in the supply chain
to ensure reach and efficiency.
The decision of the strategy, however, clearly shows how the knowledge of micro economics
and its concepts like supply, competition, etc., have been used.
Siemens and “MOST”: The storm clouds of the industrial slowdown have hit Siemens so hard
that for the first time in its history, the company went deep into the red. Stunned by this, the
German parent has chalked out a four-point rectification programme code named MOST
(Maynards Operation Sequence Technique). The most important cause of the flight of Siemens
has been a weak domestic demand and a severe cost-push effect on the internal front as a result
of fast growth. The most important component of the rectification programme is cost reduction
and improving cost structure, productivity and quality. Needless to say that cost is an important
concept dealt with in detail in micro economics.
Telco and Competition: The gloomier picture of Telco can be explained in terms of concepts of
micro economics integrated with other disciplines – high costs, piling inventories, a market
slowdown, low demand and competition. The move of Telco to go in for automobiles has come
as a result of slowdown in performance. The management admits that it is time to cut down costs
severely. Similarly, Telco is gearing itself for the imminent threat of competition in the truck
segment (10-tonne). The company has made this segment virtually its own with a cost advantage
and introducing measures for cost control.
Performance of Multinationals: The scope of micro economics is wide. Detailed studies and
evaluation can be made using it. For example, a study conducted by The Economic Times
Research Bureau of 29 MNCs for the year ended June 97 says, “Increasing costs and growing
competition have squeezed margins of multinational firms in India, despite an overall increase
in sales volumes”. Interestingly, last year’s (1997) first half saw bottom lines of most Indian
corporates reeling under increasing costs, higher interest rates and declining demand.

1.6 Central Problems of an Economy

Every economy faces some problems. These problems are associated with growth, business
cycles, unemployment and inflation. The macroeconomic theory is designed to explain how
supply and demand in the aggregate interact to concern with these four problems. Economists
these very important national problems as macroeconomic problems — that is, as problems
that could not be understood or solved without an understanding of the workings of the economic
system as a whole. The four distinctively macroeconomic problems are:
1. Recession
2. Unemployment

3. Inflation
4. Economic Growth or Stagnation

1.6.1 Recessions, Depressions and Economic Fluctuations

The event that created modern macroeconomics was called "the Great Depression," but the
general term for decreasing national production, in modern economics, is a recession.

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