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Managerial Economics Basics

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10 views17 pages

Managerial Economics Basics

Uploaded by

Dr. Deepti Sharma
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 PPT, PDF, TXT or read online on Scribd
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MANAGERIAL

ECONOMICS

1
Managerial Economics
• Manager
– A person who directs resources to achieve a stated
goal.
• Economics
– The science of making decisions in the presence of
scare resources.
• Managerial Economics
– The study of how to direct scarce resources in the way
that most efficiently achieves a managerial goal.

2
Managerial +
Economics
• Managerial Economics is
economics applied in
decision-making
• Link between abstract theory
and managerial practice.
• Analysis for identifying
problems, organizing
information and evaluating
alternatives.

3
Managerial Economics &
Business Decision-making

Decision Problem

Tools &
Traditional Managerial Economics Techniques
Economics
of Analysis

Optimal Solution to Business Problems

4
Nature of Managerial Economics

Spencer and Siegelman point to the fact that


“Managerial Economics.. is the integration of
economic theory and business practice for
the purpose of facilitating decision-making
and forward planning by management.”

5
Chief Characteristics of
Managerial Economics/Nature
• Managerial economics is micro-economic in character as
it concentrates only on the study of the firm and not on the
working of the economy.
• Managerial economics takes the help of macro-
economics to understand and adjust to the environment
in which the firm operates.
• Managerial economics is normative rather than positive in
character.
• It is both conceptual (theory) and metrical (quantitative
techniques).
• The contents of managerial economics are based mainly
on the “theory-of firm’.
• Knowledge of managerial economics helps in making wise
choices.

6
Significance of Managerial
Economics

• In order to enable the manager to


become a more competent model
builder,managerial economics provides
a number of tools and techniques.
• Managerial economics provides most of
the concepts that are needed for the
analysis of business problems.
• Managerial economics is helpful in
making decisions.
• Evaluating choice of alternatives.

7
8
Scope of Managerial Economics

Following aspects constitute its subject matter:-

 Objectives of a Business Firm


 Demand Analysis and Demand Forecasting
 Production and Cost
 Competition
 Pricing and Output
 Profit
 Investment and Capital Budgeting and
 Product Policy, Sales Promotion and Market Strategy.

9
Managerial Economics & Other
Disciplines

• Managerial Economics & Traditional Economics

• Managerial Economics & Operations Research

• Managerial Economics & Mathematics

• Managerial Economics & Statistics

• Managerial Economics & the Theory of


Decision-making
10
Types of economic analysis
• Micro and Macro
• Positive and Normative
• Short run and long run
Micro and Macro economics
• Microeconomics is the study the economic behaviour of
an individual, a firm or an industry.
• Study of product pricing, consumer behaviour, factor
pricing, study of firms, location of the industry.
• Macro economics is the study of aggregates such as the
overall conditions of the economy such as total
production, total consumption, total saving, total
investment.
• Study of national income, balance of trade and
investment, employment and economic growth
Short run and long run
• Short run is a time period not enough for
consumers and producers to adjust
completely to any new situation.
(Usually capital is fixed and labour is variable)
• Long run represents the time period for the
business in which all factors of production
may be varied.
Positive and normative
• Positive economics establishes a
relationship between cause and effect.
( The distribution of income in India is unequal)
• Normative economics is concerned with
questions involving value judgments.
(The distribution of income in India should be equal)
Basic concepts in managerial
economics
• Resource allocation – What to produce? How
to produce ? For whom to produce.
• Opportunity cost – It is what we give up when
we make a choice.
• Production possibilities curve – it shows the
maximum output of two goods or services that
can be produced given the current level of
resources available and maximum efficiency in
production
Basic concepts in managerial
economics
• Marginal utility is the amount by which
consumer well-being or total utility changes
when the consumption of a good or service
changes by one unit.
• Marginal revenue is the change in total revenue
which results from increasing the quantity sold
by one unit
• Marginal cost is the change in the total cost
which results from increasing the quantity
produced by one unit
Basic concepts in managerial
economics
• Business objectives – Profit maximization,
maximization of sales revenue.
• Risk and uncertainty – Risk occurs in
economic decision making where there is an
element of chance or injury .
• Discounting – is concerned with the fact that
the costs and benefits arising in future years
are worth less to us than costs and benefits
arising today

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