2. Economic
s
Economics: ‘A Queen of Social
Sciences’
Economics ‘OIKOS’ ‘NOMOS’ (Greek
Words)
‘OIKOS’
‘NOMO
S’
‘HOUSE’
‘MANAGEME
NT’
According to J.S. Mill Economics is “The practical science
of production and distribution of wealth.”
‘It is the study of How people produce and
spend
income.’
3. Managerial
Economics
• Branch of Economics.
• ‘Managerial Economics is the study of
Economic Theories, Principles and Concepts
which is used in Managerial Decision Making.’
• ‘Managerial Economics is the Application of
various Theories, Concepts and Principles
of Economics in the Business Decisions.’
• It also Includes ‘The Application of
Mathematical and Statistical tools in
Management decisions.’
5. Managerial
Economics
Managerial Decisions
Choice of product
Choice of production
method Choice of price,
Etc…
Managerial Economics
‘Application of
Economic Concepts,
Theories and Analytical
tools to find solutions
for managerial
problems.
Application of
Economic concepts,
Theories and
Principles in
decision Making
Application of
Analytical tools
such as,
Mathematical
and Statistical
tools
7. Economics
It talks about ‘Economic Activity’
and ‘Economic Problem’.
‘It is the Study of Logic choice between Scarce resources
and unlimited wants’
‘Economics is to get the answer to the basic questions
of an economy such as, What to produce?, How to
produce? And for whom to produce?’
‘Economics is the social science that is concerned with
the production, distribution, and consumption of
goods and services.’
8. Mention some of the economic
activities of your daily life.
Mention some of the economic
scarcities of your daily life .
9. Economic
s
There are Two Branches
Micro Economics: Means ‘Small’ or
‘Individual’.
The term ‘MICRO’ comes from the Greek
word
‘MIKROS’Which means ‘Small’ or
‘Individual’.
Macro Economics: Means ‘Group’ or ‘Whole’.
The term ‘MACRO’comes from the Greek
word ‘MAKROS’Which means ‘Large’ or
10. Micro
Economics
• Micro Economics: ‘It is the study of
particular firms, particular households,
individual prices, wages, incomes, individual
industries, particular industries.”
• Some of the theories which come under
Micro Economics,
–Theory of Individual/Market
Demand.
–Theory of Production and Cost.
–Theory of Markets and price.
11. Macro
Economics
• Macro Economics: ‘It deals not with individual
quantities as such but with aggregates of
these quantities, not with individual incomes
but with national income.’
• Some of the theories which come under Macro
Economics,
– Theory of total output and employment.
– General price level.
– Theory of Inflation.
– Theory of trade cycles
– Economic growth, Etc…
13. In 1951 Joel Dean published a book
entitled "Managerial Economics."
Managerial Economics reveals that how
economic analysis is used to formulate
the economic policies in respect to the
business firms.
Managerial Economics was formerly
known as "Business Economics.“
It is also called as "Applied Economics".
14. Definitions:
1) According to 'E. T. Brigham' and "J. L. Pappas',
"Managerial Economics is the application of
Economic theory and methodology to business
administration practice."
2) 'McNair and Meriam' defined it as "Managerial
Economics consists of the use of Economic modes of
thought to analyse business situations."
3)Siegel Man,”business economics as the integration
of economic theory with business practice for the
purpose of facilitating decision making forward
planning by management.”
Joel Dean, “use of economic analysis in formulating
policies is known as managerial economics.
15. Meaning
It is clear from the above definitions that
managerial Economics deals with the economic
aspects of managerial decisions, which can be
used by managers, while running the business
activities.
It is a midway between Economics and
Business Management and serves as a link
between the two.
In Business Economics, economic theories and
principles are put in relation to the real
business behaviour and prevailing conditions.
16. Objectives of Business Economics
Business Economics aims at integration of
Economic theory with business practice.
Business Economics aims at avoiding abstract
discussion
It aims at practical application of Economic
concepts and principles to solve business
problems.
It employs most modern instruments and tools to
solve business problems
It aims at the optimum use of scarce resources of a
firm.
It aims at all round development of the firm.
17. Difference between Managerial Economics
and Economics
Economics
1.Comprehensive and
wider scope
2.It has both Micro and Macro
in nature
3.It is both Normative
and positive science
4.It is concerned with the
formulation of theories
and principles
5.It discusses general
problems
Managerial
Economics
1.Narrow and limited scope
2.It is essentially Micro in
nature and Macro in analysis
3.It is mainly a Normative
science 4.It is concerned with
the application of theories and
principles of economics
5.It discusses Individual
problems
18. Nature of Managerial
Economics
Science as well as Art of decision making.
It is essentially Micro in nature but Macro
in analysis.
It is mainly a Normative science but positive
in analysis.
It is concerned with the application of theories
and principles of economics.
It discusses Individual problems.
It is dynamic in nature not a Static.
It discuss the economic behavior of a firm.
It concentrates on optimum utilization of
resources.
19. Scope of Managerial
Economics
Objectives of a Firm.
Demand Analysis and Forecasting.
Production and cost analysis.
Pricing decisions.
Profit management.
Capital management.
20. a) Demand analysis and Forecasting
A forecast of demand is useful in the
preparation of production schedules and
to decide the employment or resources.
Demand analysis identifies the factors
influencing the demand for a firm’s
product and hence the firm can take the
necessary measures to manipulate the
demand in its favour.
21. b) Cost and production analysis
Estimation of cost is very essential for all
problems of decision making and
planning of production at the firm level.
It includes laws of returns and returns to
scale
Cost analysis helps in determining the
size of firm, volume of output, and factor
proportions. Production analysis always
in physical terms while cost analysis is in
monetary terms
22. c) Pricing decisions, policies and practices
Pricing forms an important area of
business economics. The success of a
business firm depends to a great extent
upon the correctness of the price
decisions taken by it.
The important aspects dealt with under
this area are : price discrimination under
various market forms, pricing methods,
differential pricing, and price forecasting.
23. d) Profit Management
All business firms aims at maximum profits.
The success of the business firm is always
measured in terms of profits.
The main areas of uncertainties are fluctuations
in demand changes in the prices of inputs and
products, changes in the number of
competitors and degree of competition and
changes in technology. And other factors also
keep on changing. Therefore profit planning
and management becomes absolutely
necessary.
24. e) Capital Management
Capital management is the most difficult and
complex problem faced by a business manager.
Any wrong decision may cause severe losses to
the firm.
Capital budgeting involves three problems :
1. calculating the profitability of capital
investment
2. choice of capital investment
3. optimal allocation of capital
25. Scope of Managerial Economics
Process of Decision Making:
Managerial Economics
Various
Alternative
actions
available
Decision to
select of
suitable
action
Execute the
selected
action
Result and
outcome
of the action
realization of
objectives
The Process
keeps
continuing to
achieve
different goals
2
5
26. Features of Managerial Economics
Managerial Economics studies how efficiently the organisational resources can
be allocated to reach the objectives.
Managerial Economics is microeconomic in nature: Managerial Economics
uses concepts of micro- economics to study the problems of the firm. For
example, how a producer decides on cost output relation, pricing strategy
according to demand, etc.
Managerial Economics uses macroeconomics to understand how the
macroeconomic environment affects the firm. Therefore, Managerial
Economics draws extensively from macroeconomics to understand the effect
of business cycle, economic policies of the government, etc., on the business.
For example, a producer not only needs to know the demand for the
product in deciding the price but also the competition it faces from the
international brands available in markets, the economic condition, etc. 2
6
Managerial
Economics
27. Features of Managerial Economics
Managerial Economics is both positive as well as normative in nature. Positive
science tells us 'what is', all pure sciences are positive sciences. Normative
science tells us 'what ought to be', it has value judgment as it tells us what
should be. Managerial Economics is both, it tells the facts and at the same
time, it also tells what should be. A manager cannot always go with the facts
but makes decision with value judgments involved.
Managerial Economics has a pragmatic approach: Managerial
Economics has a more practical approach as it takes the concepts, principles
and laws from economics and studies how they are applied in real business
life for decision making and forward planning. It uses the theory of the
firm to solve business problems and theory of distribution for the analysis
of profits.
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7
Managerial Economics
28. Managerial economics and
Decision Making
• Decision making:
– Decision making on internal affairs.
– Decision making on external affairs.
Internal affairs talk on internal environment which
consists of internal factors such as, Production,
Financial, Marketing and Humanresource
related decisions.
External Affairs talk on external environment
which consists of external factors such as,
PEST related decisions.
29. Decision
Making
• Uncertainty:
– Nothing can be expectable because
of the constant changes in the
environment both internally as well as
externally.
• Risk:
– It is the situation which comes under
uncertainty.
31. Economic
Models
Economic model
is the structural and scientific method
of constructing or developing Solutions
by using basic economic principles,
concepts, theories and Quantitative
techniques such as mathematical and
statistical tools.
32. Stepsto
construct
Econom
ic Models Evaluating results
Testing of
Hypothes
is
Analysis of data using Basic
Principles of economics and
Quantitative Techniques.
Data collection
Formulation of
hypothesis
Defining
Conclusion for
decisions.
