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Archana
RBMI
Definitions
Managerial economics is an offshoot of two
Definitions
Dr Alfred Marshall Economics is a study of
Meaning Of Economics
Economics can be called as social science dealing
management
Management is the art of getting the work
Managerial Economics
Edurin Mansfield Managerial Economics is
Introduction
Managerial
Economics is economics
applied in decision-making.
Decision making is the process to select a
particular course of action from among a
number of alternatives. It is concerned
with those aspects of economics and its
tools of analysis which are used in the
process of decision making of business
enterprise.
It is the study of managing maximum
gains out of scarce resources.
Definition
Managerial economics is concerned with
the application of economic principles and
methodologies to the decision process with
in the organization. It seeks to establish
rules
and principles to facilitate the
attainment of the desired economic goals of
management.
-- By Edwin Mansfield
Diagrammatic Presentation
Economic Theory
and Methodology
Business Management
Decision Problems
Managerial Economics:
Application of Economics
to solving business
Optimal solution to
business problems
Key Points Of
Definition
Decision-Making
Economic Methodology
Economic goals of firm
CHARACTERISTICS OF
MANAGERIAL
Microeconomics
Normative economics:
ECONOMICS
Pragmatic
DIFFERENCE BETWEEN
ECONOMICS AND
MANAGERIAL ECONOMICS
ECONOMICS TELLS US ABOUT BODY OF
DIFFERENCE BETWEEN
ECONOMICS
AND
ECONOMICS HAS BOTH CHARACTERSTICS OF
MANAGERIAL
MICRO AND MACRO ECONOMICS
MANAGERIAL ECONOMICS HAS MAJOR
CHARACTERSTICS OF MICRO
DIFFERNCE BETWEEN
ECONOMICS
AND
MICRO ECONOMICS AS A PART OF ECONOMICS
MANAGERIAL
ECONOMICS
DEALS WITH INDIVIDUALS
AND FIRMS
WHILE MANAGERIAL ECONOMICS DEALS ONLY
DIFFERENCE BETWEEN
ECONOMICS AND
MICRO ECONOMICS BEING PART OF ECONOMICS
MANAGERIAL
ECONOMICS
DEALS WITH DISRIBUTION
THEORY OF
RENT,INTEREST,PROFIT.WAGES
WHILE MANAGERIAL ECONOMICS DEALS ONLY
IN PROFITS.
Scope Of Managerial
Economics
Micro Economics
Micro Economics
It has been defined as that branch where the unit
Micro economic
theories
Theory of production;
Theory of price determination;
Theory of profit;
Theory of demand.
Macro Economics
It studies the economics as a whole.
It is aggregative in character and takes the entire
Macro economic
theories
Environment or external issues;
Theories of government policies;
Theory of capital and Investment.
Nature of managerial
economics
It is a science.
It is an art.
It is a micro economics.
It is a normative science.
Role of Managerial
Economist
Making decisions and processing information
are the two primary tasks of managers. The
task of organizing and processing information
and then making an intelligent decision based
upon this information and the basic theory
can take two general form:
Specific decision
General task
Specific decision
Production scheduling
Demand forecasting,
Market research,
Economic analysis of industry,
Investment appraisal,
Advice on trade
Security management analysis,
Pricing and related decision,
Analyzing and forecasting environmental factors.
General task
External factors
General economic
conditions
Demand for the
product
Input cost of the firm.
Market conditions.
Firms share in the
market.
Economic policies.
Internal factors
Determination of
pricing policies.
Decision of expansion
of business activities .
Determination of level
of efficiency and
operation.
Determination of
wages policy.
Responsibilities of Managerial
Economist
To measure the increase in earning capacity of
the firm.
To make successful forecasting.
To contact the sources of Economic information
and Experts.
To keep the management informed of all the
possible economic trends.
To achieve economic respectable status in the
firm.
To perform functions sincerely.
Decision Making
Decision making is the central objective of Managerial
Economics
Decision making may be defined as the process of
selecting the suitable action from among several
alternative courses of action
The problem of decision making arises whenever a
number of alternatives are available. Such as,
What should be the price of the product?
What should be the size of the plant to be installed?
How many workers should be employed?
What kind of training should be imparted to them?
What is the optimal level of inventories of finished
products, raw material, spare parts, etc.?
DEMAND FORECASTING
INVESTMENT DECISION
Forward planning involves investment
problems. These are problems of allocating
scarce resources over time.
For example, investing in new
plants, how much to invest, sources of funds,
etc..
Scope of ME
Demand analysis and Forecasting,
Production function,
Cost analysis,
Inventory Management,
Advertising,
Market structure and Pricing System,
Profit Analysis,
Resource allocation etc
Nature of ME
Concepts of Micro-Economics
Elasticity of demand
Marginal cost
Marginal revenue
Market structures and their significance in
pricing policies.
Concepts of Macro-Economics
The magnitude of investment and the level of
national income,
The level of national income and the level of
employment,
The level of consumption and the level of
national income
In ME emphasis is laid on those prepositions which
are likely to be useful to management
Importance of
managerial
economics:
Reconciling traditional
theoretical concepts to
the actual business behaviour and conditions
Estimating economic relationships
Predicting relevant economic quantities
Understanding significant external forces
Basis of business policies
Ideal from other subject
Helpful to new age manager
Opportunity cost
Incremental principle (Cost & Revenue)
Principles of Managerial Economics
Principle of the time perspective
Opportunity cost
The opportunity cost of anything is the return
Incremental principle
(Cost
& Revenue)
Incremental
cost - change in total cost as a
result of change in the level of output,
investment etc.
Incremental revenue- change in total
revenue resulting from a change in the level
of output, prices etc.
A manager always determines the worth of a
decision on the basis of the criterion that
IR>IC.
For Example:
Discounting principle
Time value of money
Examples:
Equi-marginal principle
According to this principle, different courses of
Example:
Activity
1. Make a list in your own words of some of
the economic decision that
you are facing
your family has to take
your country has to take
References
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