Managerial Economics

What is Management ?
Duties ,functions and role of manager
What is Economics?
Definition of Managerial Economics
Relationship to Economic Theory
Relationship to decision science
Business environment and managerial economics
Scope of Managerial economics

What is management

Evolution and present scenario

Modern business world is characterized by

dynamism ,computerization,
Economies are no longer self-sufficient, inwardlooking; added is the pressure of severe
competition due to globalization.
Darwins principle applies even today nay more
strongly.
Big corporates follow military strategies involving
surprise, security and unity of command.
Business units aim at a variety of goals /
objectives.
Problem of economizing and choice are most
important for firms.

Decision-making is a must at every stage.

Survival amidst uncertainties is no doubt
challenging. Managerial Economics helps them
to plan and implement decisions in such a
complex and dynamic atmosphere.
Business Economics or Economics of firms
provides managers with different tools.
techniques and principles enabling them make
optimum use of resources within constraints.

What is management ?

The term Managerial Economics involves 2 terms;

former refers to acts and decisions of manager
later to a subject matter.

What is Economics ?

It is a science of earning and spending wealth

as defined by the Father of Economics Adam
Smith in his classic work An enquiry into
nature and causes of the Wealth of Nations.
In the opinion of Alfred Marshall it was study of
mankind in ordinary business of life.
Lionel Robbins gave us the most accepted
scarcity-oriented definition of Economics. He
says Economics is a social science which
studies human behavior as a relationship
between unlimited wants and scarce means
which have alternative uses.

Definition of Managerial
Economics

According to Mansfield ,managerial economics is

applied microeconomics.
Whether profit or non-profit making organisations
and whatever may be their goals , they have all to
face constraints which may be internal & /or
external.
THE BASIC DECISION-MAKING PROCESS IS
SAME FOR ALL FIRMS.
All managerial decision problems are solved with
the help of tools ,concepts and principles in.a)
Economic theory; b) Managerial economics c)
Mathematical economics.
Role of economic theory---In any business, the businessman has to decide
what , how ,when ,how much , whom , where etc.

There arises question of choice at every stage of

production. eg. Choice regarding selection of project,
location of plant ,inputs , funds etc.

The manager has to study environment at

Micro as well as Macro levels.
Micro economics here the subject-matter
is individual consumer ,firm market , industry
etc. Theories under micro-economics are
:Theory of value, theory of distribution,
theory of economic welfare etc.
Macro-economic environment is general
eco-pol-social condition of the larger system
which may be at domestic & /or international
level.

Role of mathematical economics

and econometrics---

Mathematical economics is used to

formalize economic laws. Eg. Law of
demand can be expressed mathematically
as Q =25 -3 (p) here demand is dependent
variable and price independent variable
;moreover demand is inversely related to
price.
Econometrics is application of statistics to
real world. Empirically collected data can be
applied to equations to find solution. eg.
Q= f (Y, Px , Py , W , U , T ,E ----- )
Trends revealed by forecasting help a firm
take optimal decisions.

Business environment and

managerial economics-

Business environment refers to all those forces

which influence functioning of business.
Two types of factors are relevant here-1)Internal
factors :these are controllable; either altered or
modified. 2) External factors- these are beyond
control
Example of internal factors: corporate philosophy,
physical assets , management structure, human
resources , R &D , FINANCE , technology etc.
Example of external factors :Customers , suppliers
, competitors , natural factors ,demographic
changes , political situation , eco-social condition ,
government policies etc.

Letz find out how much of

Economics do we know???

Scope of managerial economicsStudies 8 different areas

Demand
Cost Analysis
Pricing policies
Profit management
Capital Management
Inventory management
Marketing and advertising
Whether it is setting of new machinery/plant
or recruiting /laying off labor-

Basic Concepts

Rationality
Positive and Normative Economics
Alternative economic systems
Value and price
Utility and demand
Marginalism / Marginal analysis

Rationality

Many casual observers of the subject argue that

the relevance of the subject hinges on the selfish
nature of the humankind since it deals only with
satisfying the material desires. But economist
recognize that people act for variety of reasons,
some selfish some humanitarian. The point is that
the action of whichever type will be influenced by
the cost and benefit. As an activity becomes more
costly it is less likely to be chosen.
Person is likely to try to save the life of the boy
in three feet swimming pool rather than the rapid
current approaching Nigara Falls.

Positive and Normative

economics

Stating the facts as it is.

Making the judgment about hoe the
things should be.

Alternative economic systems

What to produce?
How to produce?
For whom to produce?
Market economy
Command economy
Mixed economy

Value and price

Utility and demand

Marginalism / Marginal
analysis
Rs.
invested

A
(Rs000)

B
(Rs000)

selection

17

24

12

30

16

35

20

39

24

A/B

42

28

44

32

45

36

10

45

40

Thank Q !!