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Module 1 MGTECO

This document provides an introduction to managerial economics. It defines economics as the study of production, distribution, and consumption of goods and services. Managerial economics applies microeconomic and macroeconomic principles to improve managerial decision-making. It helps managers understand consumer behavior, costs, and how markets function. Managerial economics is concerned with both internal issues within a firm's control, and external environmental factors like social, economic, and political conditions that influence the firm. The goal is to help managers maintain profitability while meeting social responsibilities.

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John Delacruz
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108 views3 pages

Module 1 MGTECO

This document provides an introduction to managerial economics. It defines economics as the study of production, distribution, and consumption of goods and services. Managerial economics applies microeconomic and macroeconomic principles to improve managerial decision-making. It helps managers understand consumer behavior, costs, and how markets function. Managerial economics is concerned with both internal issues within a firm's control, and external environmental factors like social, economic, and political conditions that influence the firm. The goal is to help managers maintain profitability while meeting social responsibilities.

Uploaded by

John Delacruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MODULE 1

THE INTRODUCTION TO MANAGERIAL ECONOMICS

What is Economics - is the study of production, distribution and consumption of goods and
services.
The first definition indicates that economics includes any business, nonprofit organization
or administration unit.
Economics - is the study of choice related to to the allocation of scarce resources.
The second definition establishes that economics is at the core of what managers of these
organizations do.
 The purpose of managerial economics is to provide economic terminology and
reasoning for the improvement of managerial decisions.
 Approaches/Branches to study of Economics
1. Microeconomics - it studies the phenomena related to goods and services from
the perspective of individual decision making entities (households and
entities)
2. Macroeconomics - approaches the same phenomena at an aggregate level, the
total consumption and production of a region. Both Microeconomics and
Macroeconomics have their merits.
The Microeconomics Approach is essential for understanding the behavior of atomic
entities in the economy. However, understanding the systematic interaction of the many
households and businesses would be too complex to derive from descriptions of the
individual units.
The Macroeconomics Approach provides measure and theories to understand the overall
systematic behavior of an economy.

What is Managerial Economics - refers to the firm’s decision making process.


-is a stream of management studies which emphasizes solving problems and decision-
making by applying the theories and principles of Microeconomics and Macroeconomics.
Types of Managerial Economics:
1. Liberal Management- A market is a democratic place where people are liberal
to make their choices and decisions. The organizations and the managers have to
function according to the customer’s demand and market trend else it may lead
to market failures.
2. Normative Management - The normative view of managerial economics states
that administrative decisions are based on real-life experiences and practices.
They have a practical approach in demand analysis forecasting, cost management,
product designs and production, recruitment, etc.
3. Radical Management - Managers must have a revolutionary attitude towards
business problems. They must make decisions to change the present situation or
condition. They have a focus more on the customer’s requirement and
satisfaction rather than only profit maximization.

Gregory Mankiw
Principles of Managerial Economics:
1. Principle of How People Make Decision
1.1 People face trade offs
1.2 Opportunity Cost
1.3 Rational People Think of the Margin
1.4 People Respond to Incentives
2. Principles of How People Interact
2.1 Trade can make everyone better off
2.2 Markets are usually a good way to organize economic activity
2.3 Governments can sometimes improve market outcomes
3. Principles of How Economy Works as a Whole
3.1 A county’s standard of living depends on its ability to produce goods and
services
3.2 Prices rise when the government prints too much money
3.3 Society faces a Short-Run trade off between inflation and unemployment
Scope of Managerial Economics
Managerial Economics provides management with a strategic planning tool that can
be used to get a clear perspective of the way the business world works and what can be
done to maintain profitability in an ever-changing environment.
Managerial Economics is primarily concerned with the application of economic
principles and theories to the types of resource decisions made by all types of business
organizations.
Areas of Managerial Economics:
1. Operational or Internal Issues - refers to those which are within the business
organization and they are under the control of the management.
2. Environmental or External Issues - This refers to the general economic, social and
political atmosphere within which the firm operates.
Social Environment - refers to the social structure as well as social organization like trade
unions, customer’s cooperative.
Political Environment - refers to the nature of state activity, chiefly states’ attitude towards
private businesses, political stability
The environmental issues highlight the social objective of a firm; the firm owes a
responsibility to the society. Private gains of the firm alone cannot be the goal.

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