INTRODUCTION

TO

MANAGERIAL
ECONOMICS

Prepared by:

Dr. G. Makuyana
+263 782 314 111
+263 715 892 262
[email protected]
 What is managerial
economics about?

Fundamental
questions in What kind of issues does
it deal with?
Managerial
Economics
How can it help us make
better decisions, in
business or elsewhere?
  Managerial Economics = Management + Economics

 Management is the guidance, leadership and

control of the efforts of a group of people towards
some common objective.

Managerial  Economics is the efficient allocation and

utilisation of scarce resources to achieve
Economics: maximum/optimal human welfare.
An overview
 Human needs and wants are dynamic and
unlimited. However, economic resources (land,
labour, capital & entrepreneurship) are limited.

 Therefore, someone, somewhere, has to make a

decision of what to produce, how much to
produce, when to produce and for whom.
 WHAT IS MANAGERIAL ECONOMICS

 Is the application of economic theory, analysis and methods to business

management practices.
 Essentially, Managerial Economics is applied economics in the field of
business management.
 Managerial Economics is largely microeconomics, which deals primarily
with how markets work and interactions between the various components
of the economy, that is:
Consumer – demand, utility
Firm – production + costs (= supply), pricing
Market structure, etc
 The microeconomic theories are discussed largely in a neoclassical
framework, which treats the individual elements within the economy
(consumers, firms and workers) as rational agents with objectives that
can be expressed as quantitative functions (utilities and profits) that are
to be optimised, subject to certain quantitative constraints.
 WHAT IS MANAGERIAL ECONOMICS CONT’

Economic theory Business management

and methodology decision problems

Business Economics
Application of Economics
to solve business problems

Optimal solutions to
business problems
(= profit maximisation)
 Estimating economic
relationships

Managerial
Predicting relevant
Economics economic quantities
helps in:
Formulating business
policies and plans
 Scope: Managerial Economics
 Incorporate micro and macroeconomics to deal with business
problems

 Microeconomics - micro means a small part Concerned

with analysis of behavior of individual economic variables
such as individual consumer or a producer or price of a
particular commodity
 Macroeconomics - concerned with aggregate behavior of
the economy as a whole
   CHARACTERISTICS OF MANAGERIAL ECONOMICS

1.  Mostly microeconomic: because it deals with matters of a

particular business firm only.

2. Applies economic theories: uses all economic theories

relating to production, costs, profits, etc.

However, Managerial Economics uses macroeconomic

approaches frequently, such as business cycles, national
income accounting, public finance, international trade, etc.
So, Managerial Economics uses the macro-economic
phenomenon for taking business decisions.
Managerial
Economics

and

Management
Accounting
 Accounting Profits
 Total revenue (sales) minus dollar
cost of producing goods or Economic
services.
Profits
 Reported on the firm’s income
statement.
vs
 Economic Profits Accounting
 Total revenue minus AC minus Profits
total opportunity cost.
 To determine the key internal
& external factors which will
influence the business over the
period ahead.

Role of To gather economic data, analyse

Managerial all pertinent information so as to
make effective decisions that
Economist furthers the goals of organisation.

To prepare position
S/He is an papers on issues facing
economic advisor the firm and the industry.

to a firm To provide general

intelligence service supplying
management with economic
information.

To participate in public
policy making
platforms.
 1. helps us to understand the economic
behaviour of human beings. 
2. makes suggestions for overcoming the
complicated problems faced by the people
THEORETICAL and the government in various economic
SIGNIFICANCE systems. Hence it has great significance for
understanding the working of the economic
system.
OF 3. provides a good knowledge regarding the
nature, causes and effects of various
economic phenomena.
MANAGERIAL 4. suggests various ways and means for
ECONOMICS maintaining the growth rates in the world
economies. It also analyses the factors
obstructing the economic growth of these
economies.
5 Economics provides a good knowledge and
information regarding the techniques of
Economic Planning.
6. It helps us to predict the consequence of
various economic phenomena, eg Covid19
  PRACTICAL SIGNIFICANCE
1. Useful to the Finance Minister
It provides a good knowledge about public revenue, public debt and public expenditure. It helps them in forming a
sound financial policy and result oriented budget.
2. Useful to the Minister for Planning
It furnishes a good knowledge about the various types of plans, mobilisation, plan implementation, capital output
ratio, investment strategy etc.
 
3. Useful to the Bankers
It enables them to understand the nature, purpose and implications of different economic policies implemented by
the business firms.
4. Trade Union Leaders
Knowledge of Managerial Economics helps the trade union leaders to understand the nature and causes of industrial
disputes, wage problem etc.
5. Businessmen
Businessmen, with the help of Business Economics, can study the fluctuations in business, prices, production and
employment. They can adopt a proper strategy for producing goods and services according to the changes in
demand.
6. Statesmen
It enables them to understand the nature and causes of economic problems. It helps them to solve the economic
problems like unemployment, inflation, scarcity of goods etc.

 
 Define
managerial
economics

How does managerial

economics differ from
economics?
Questions
Explain the scope
of managerial
economics.

Explain role and

responsibilities of
managerial economist.
MANAGERS NEED TIME

TO

REFRESH