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Kinked Demand Curve

The kinked demand curve theory is an economic theory regarding oligopoly and monopolistic competition.

 Kinked demand was an initial attempt to explain sticky prices.

Note: sticky prices.

Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. For example, nominal wages are often said to be sticky in the short run. Market forces may reduce the real value of labour in an industry, but wages will tend to remain at previous levels in the short run. This can be due to institutional factors such as price regulations, legal contractual commitments (e.g. office leases and employment contracts), labour unions, human stubbornness, or self-interest. Stickiness normally applies in one direction.^{[citation needed]} For example, a variable that is "sticky downward" will be reluctant to drop even if conditions dictate that it should. However, in the long run it will drop to equilibrium level.

Similarities and differences between "Kinky" demand curves and traditional demand curves:

"Kinky" demand curves and traditional demand curves are similar in that they are both downward-sloping. 

The only distinction between the two curves is a hypothesized convex bend, with a discontinuity at the bend, known as the “Kink”. This means that the first undefined derivative at that specific point results into a jump discontinuity in the marginal revenue curve.

The idea of ‘kink’ is based on the concept of “full cost”. Full cost is nothing but the marginal cost of every unit, with a percentage of the overhead or fixed cost and an extra profit-making percentage added to it.

 Kinked demand curve generally represents demand under oligopoly.

The graphical representation of the Kinked Demand Theory made by the famous economists, Hitch and Hall facilitate a better understanding of this economic concept.

Figure 6.1 Kinked Demand Curve Model

If firms face such demand curves, the price, p*, is profit maximizing for any marginal cost curve (MC) that cuts the vertical section of the marginal revenue curve (MR). For example, p* is the profit-maximizing price for both MC₁ and MC₂ in Figure 6.1. The kinked demand theory of oligopoly behavior predicts that prices are likely to remain unchanged for small changes in costs.

Hall and Hitch's graphical illustration of kinked demand

The kinked demand theory of oligopoly behavior predicts that prices are likely to remain unchanged for small changes in costs.

Neoclassical Organization Theory

It addressed many of the problems inherent in classical theory. The most serious objections to classical theory are that it created overconformity and rigidity, thus squelching creativity, individual growth, and motivation. Neoclassical theory displayed genuine concern for human needs.
One of the first experiments that challenged the classical view was conducted by Mayo and Roethlisberger in the late 1920's at the Western Electric plant in Hawthorne, Illinois (Mayo, 1933). While manipulating conditions in the work environment (e.g., intensity of lighting), they found that any change had a positive impact on productivity. The act of paying attention to employees in a friendly and nonthreatening way was sufficient by itself to increase output. Uris (1986) referred to this as the "wart" theory of productivity. Nearly any treatment can make a wart go away--nearly anything will improve productivity. "The implication is plain: intelligent action often delivers results" (Uris, 1986, p. 225).
Classical Organization Theory
Classical organization theory evolved during the first half of this century. It represents the merger of scientific management, bureaucratic theory, and administrative theory.
Frederick Taylor (1917) developed scientific management theory (often called "Taylorism") at the beginning of this century. His theory had four basic principles: 1) find the one "best way" to perform each task, 2) carefully match each worker to each task, 3) closely supervise workers, and use reward and punishment as motivators, and 4) the task of management is planning and control.
Initially, Taylor was very successful at improving production. His methods involved getting the best equipment and people, and then carefully scrutinizing each component of the production process. By analyzing each task individually, Taylor was able to find the right combinations of factors that yielded large increases in production.
While Taylor's scientific management theory proved successful in the simple industrialized companies at the turn of the century, it has not faired well in modern companies. The philosophy of "production first, people second" has left a legacy of declining production and quality, dissatisfaction with work, loss of pride in workmanship, and a near complete loss of organizational pride.
Max Weber (1947) expanded on Taylor's theories, and stressed the need to reduce diversity and ambiguity in organizations. The focus was on establishing clear lines of authority and control. Weber's bureaucratic theory emphasized the need for a hierarchical structure of power. It recognized the importance of division of labor and specialization. A formal set of rules was bound into the hierarchy structure to insure stability and uniformity. Weber also put forth the notion that organizational behavior is a network of human interactions, where all behavior could be understood by looking at cause and effect.
Administrative theory (i.e., principles of management) was formalized in the 1930's by Mooney and Reiley (1931). The emphasis was on establishing a universal set of management principles that could be applied to all organizations.
Classical management theory was rigid and mechanistic. The shortcomings of classical organization theory quickly became apparent. Its major deficiency was that it attempted to explain peoples' motivation to work strictly as a function of economic reward.
Contingency Theory
Classical and neoclassical theorists viewed conflict as something to be avoided because it interfered with equilibrium. Contingency theorists view conflict as inescapable, but manageable.
Systems Theory
Systems theory was originally proposed by Hungarian biologist Ludwig von Bertalanffy in 1928, although it has not been applied to organizations until recently (Kast and Rosenzweig, 1972; Scott, 1981). The foundation of systems theory is that all the components of an organization are interrelated, and that changing one variable might impact many others. Organizations are viewed as open systems, continually interacting with their environment. They are in a state of dynamic equilibrium as they adapt to environmental changes.

A central theme of systems theory is that nonlinear relationships might exist between variables. Small changes in one variable can cause huge changes in another, and large changes in a variable might have only a nominal effect on another. The concept of nonlinearity adds enormous complexity to our understanding of organizations. In fact, one of the most salient argument against systems theory is that the complexity introduced by nonlinearity makes it difficult or impossible to fully understand the relationships between variables.

Human resource management

Human Resource Management (HRM, HR) is the management of an organization's employees.^[1] This includes employment and arbitration in accord with the law, and with a company's directives.

Features

Its features include:

• Organizational Management
• Personnel Administration
• Manpower Management
• Industrial Management

Industrial Relations

Industrial relations is used to denote the collective relationships between management and the workers. Traditionally, the term industrial relations is used to cover such aspects of industrial life as trade unionism, collective bargaining, workers’ participation in management, discipline and grievance handling, industrial disputes and interpretation of labor laws and rules and code of conduct. 

DIVIDEND DISTRIBUTION

·         The expression ‘dividend’ shall have the same meaning as is given in clause (22) of Section 2, except sub-clause (e) of clause (22) of Section 2.

·         The Section applies to dividend payments made either out of current or accumulated profits.

·         The dividend so paid will be eligible for exemption for the shareholders under Section 10(34).

·         The Dividend Distribution Tax is payable by a Domestic Company even if no income-tax is payable on its total income.

·         The aforesaid tax will be treated as the final payment of the tax in respect of the amount declared, distributed or paid as dividends and no further credit shall be claimed by the company or by any other person in respect of the amount so paid.

Net operating income approach to Capital Structure

he second approach as propounded by David Durand the net operating income approach examines the effects of changes in capital structure in terms of net operating income. In the net income approach discussed above net income available to shareholders is obtained by deducting interest on debentures form net operating income. Then overall value of the firm is calculated through capitalization rate of equities obtained on the basis of net operating income, it is called net income approach. In the second approach, on the other hand overall value of the firm is assessed on the basis of net operating income not on the basis of net income. Hence this second approach is known as net operating income approach.

The NOI approach implies that (i) whatever may be the change in capital structure the overall value of the firm is not affected. Thus the overall value of the firm is independent of the degree of leverage in capital structure. (ii) Similarly the overall cost of capital is not affected by any change in the degree of leverage in capital structure. The overall cost of capital is independent of leverage.

If the cost of debt is less than that of equity capital the overall cost of capital must decrease with the increase in debts whereas it is assumed under this method that overall cost of capital is unaffected and hence it remains constant irrespective of the change in the ratio of debts to equity capital. How can this assumption be justified? The advocates of this method are of the opinion that the degree of risk of business increases with the increase in the amount of debts. Consequently the rate of equity over investment in equity shares thus on the one hand cost of capital decreases with the increase in the volume of debts; on the other hand cost of equity capital increases to the same extent. Hence the benefit of leverage is wiped out and overall cost of capital remains at the same level as before. Let us illustrate this point.

If follows that with the increase in debts rate of equity capitalization also increases and consequently the overall cost of capital remains constant; it does not decline.

To put the same in other words there are two parts of the cost of capital. One is the explicit cost which is expressed in terms of interest charges on debentures. The other is implicit cost which refers to the increase in the rate of equity capitalization resulting from the increase in risk of business due to higher level of debts.

Optimum capital structure
This approach suggests that whatever may be the degree of leverage the market value of the firm remains constant. In spite of the change in the ratio of debts to equity the market value of its equity shares remains constant. This means there does not exist a optimum capital structure. Every capital structure is optimum according to net operating income approach.

Working capital

Working capital (abbreviated WC) is a financial metric which represents operating liquidityavailable to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Factors Affecting Working Capital

  Nature of business: 

  Seasonality of Operation,   Production Policy,  Market Conditions, Conditions of Supply, Nature of Raw Material Used,  Process Technology Used, Nature of Finished Goods, Degree of Competition in the Market, Growth and Expansion,

Net Working Capital = Current Assets − Current Liabilities

Net Operating Working Capital = Current Assets − Non Interest-bearing Current Liabilities

Equity Working Capital = Current Assets − Current Liabilities − Long-term Debt

Green marketing

According to the American Marketing Association, green marketing is the marketing of products that are presumed to be environmentally safe.

Thus green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. 

Unfortunately, a majority of people believe that ecological (green) marketing refers solely to the promotion or advertising of products with environmental characteristics. Terms like Phosphate Free, Recyclable, Refillable, Ozone Friendly, and Environmentally Friendly are some of the things consumers most often associate with green marketing. While these terms are green marketing claims, in general green marketing is a much broader concept, one that can be applied to consumer goods, industrial goods and even services. Thus, green marketing incorporates a broad range of activities, including product modification, changes of the production process, packaging changes, as well as modifying advertising. Green marketing came into prominence in the late 1980s and early 1990s, it was first discussed much earlier. The American Marketing Association (short: AMA) held the first workshop on “Ecological Marketing” in 1975.^[15] The proceedings of this workshop resulted in one of the first books on green marketing entitled “Ecological Marketing”. According to Dainora Grundey and Rodica Milena Zaharia Green or Environmental Marketing consists of all activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants, such that the satisfaction of these needs and wants occurs, with minimal harmful impact on the natural environment .^[17]