17068836 introduction to managerial economics

8/8/2019 17068836 Introduction to Managerial Economics

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INTRODUCTION TO MANAGERIALINTRODUCTION TO MANAGERIAL

ECONOMICSECONOMICS

PROF. V. R . KISHORE KUMAR,

M.A .E. MPhil.


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INDEX Introduction

Definition of Economics and Managerial Economics

Scope of Managerial Economics

Basic Economic Problems

The Firm

Role of a Managerial Economist

Decision making areas

Steps in decision making References


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Emergence of managerial economics as a separate curse of

management studies can be attributed to at least three factors

b) Growing complexity of business decision making process

due to changing market conditions and business

environment

c) The increasing use of economic logic, conceptual theories

and tools of economic analysis in the process of business

decision making process

d) Rapid increase in demand for professionally trained

managerial manpower

INTRODUCTION


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DFINITIONS OF ECONOMICS AND

MANAGERIAL ECONOMICS

ECONOMICS: Economics is a social science . Its basicfunction is to study how people individual households, firms and nations maximizing their gains fromtheir limited resources and opportunities.

In economic terminology it is called as maximizingbehaviour or more approximately optimizingbehaviour .

Optimization means selecting best out of availableresources with the objective of maximizing gains fromgiven resources.


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Economics is thus a social science, which studies

human behaviour in relation to optimizingallocation of available resources to achieve the

given goals.

Eg : individual household behaviour, firm, industry and

nation

Economics is also a study of choice-making behaviour

of the people.


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The origin of the subject could be traced from the works of the

Greek philosopherAristotle who confined the study of

economics to household management and acquiring, guarding

and making proper use of wealth.

The term economics is derived from two Greek words

OIKOS(a house) and NEMEIN(to manage).

Prof. Samuleson remarks economics as the oldest of arts and

newest of science, indeed the queen of the social science.


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Definitions of Economics:

Wealth Definition- Adam Smith, J.B.Say, J.S.Mill

etc.(Classical definition)

Welfare Definition- Marshall, A.C.Pigue etc.(Neoclassical

definition)

Scarcity definition- Robbins

Growth Definition- Paul A Samuelson Moderndefinition


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Managerial economics can be broadly defined as

the study of economic theories, logic and tools

of economic analysis that are used in the

process of decision making. Economic theories

and techniques of economic analysis are applied

to analyze business problems, evaluate business

options and opportunities with a view to arriving

at an appropriate business decision.

Managerial Economics


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Douglas : Managerial economics is concerned

with the application of economic principles and

methodologies to the decision making process

within the firm or organization. It seeks to

establish rules and principles to facilitate the

attainment of the desired economic goals of the

management.


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Mansfield : He defines that managerial economics is

concerned with the application of economic

concepts and economic tools to the problems of

formulating rational decision making.

Spencer and Seigleman : It is the integration of

economic theory with business practice for the

purpose of facilitating decision making and

forward planning by management


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Scope of Managerial Economics

Economics has two major branches

1. Micro Economics

2. Macro Economics

The term Micro means small and Macro means

big.Both are applied to business directly or indirectly.

managerial economics comprises both micro and

macro economic theories. The parts of micro andmacro economics that constitute managerial economics

depend on the purpose of analysis.


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The scope of M.E. comprises all theeconomic concepts, theories and tools of

analysis which can be used for analysethe issues related to demand ,

production and cost, market structure

etc.,In other words managerial economics is

economics applied to analysis ofbusiness problems and decision making. Broadly it is applied economics


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Micro-economics applied to internal issues :

Operational issues are of internal nature. Internal issues include

all those problems which arise within the business organization

and fall within purview and control of the management .

Some of the basic internal issues are :

What to produce

How much to produce

Choice of technology i.e. choosing of the factor combination

Choice of price i.e. how to price the commodity

How to promote sales

How to face the price competition


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How to decide on new investments

How to manage capital and profit

How to manage inventory i.e. stock of both

finished goods and raw material

Most of the micro economic problems deals with

most of these questions.

The Law Demand

The Theory of ProductionAnalysis of Market Structure and Pricing

Theory


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Macro-economics deals with external issues :

The type of economic system in the country

General trends in N.I., employment, prices, savings and

investments

Structural change in the working financial institutions

viz., banks, insurance companies etc

Magnitude of and trends in foreign trade

Trends in labour supply and strength of capital market

Governments economic policies i.e., industrial,

monetary, fiscal, price and foreign etc.


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Social factors viz., value system of the society,

property rights, customs and habits etc.,

Political environment i.e., democratic, authoritarian,

socialist political systems, or state attitude towards

private business man etc.

These Environmental factors have a far-reaching

bearing upon the functioning and performance of the

firms. Therefore, decision makers have to take in to

account the present and future economic, political and

social


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THE FIRM

Meaning :

The basic unit for obtaining production which

performs crucial role of linking product, factor and

money markets.

It is an administrative organization, utilising a pool

of resources.

A business organization under a single management

with one or more establishments.


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FIRMS,INPUTS AND


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DECISION MAKING AREAS

Business decision making is influenced not only byeconomic considerations, but also by human

behavioral, technological and environmental factors

due to growing public awareness.

Decision making and processing information are two

important tasks of managers

In order to make good decisions managers must be able

to obtain, process and use information.


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The following types of cost are useful in the

decision areas

Average, Marginal and Total Costs

Fixed and Variable Cost

Direct and Indirect Cost

Replacement and Original Cost

Opportunity and Industrial CostSunk Cost and Outlay Cost


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STUDY OF ECONOMIC ENVIORNMENT

Economic environment is the most significant

component of the business environment. It affects thesurvival and success of a business organization.


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PRICING AND RELATED DECISIONS

The Price-output decisions are taken under various market

structures. The structure of the market refers to the degree

of competition in the market for the firms goods and

services.


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INVESTMENT DECISION

Business firms invest large money in their

projects. Therefore, capital expenditure for

different project proposals compete within

themselves for their claim on scarce resources.

Generally , in business sector itself, individual

firms compete against access to financial

resources and scares .


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The investment decisions are important as

vNot easily reversible

vGenerally involves large sums of money

vHighly futuristic and future is full of uncertainty

vLong gestation periods

Thus, careful financial appraisal of each project

involves larger investments. Due to above reasons,

capital decisions fall in the category of investment and

known as capital budgeting decisions made by

highest level of management.


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STEPS IN DECISION MAKINGManagerial economics is concerned with decision

making at the level of firm. These decisions have far

reaching effects on the firm. Delay in taking decisions

or implementing decisions might turn in to losses.

Various steps in the decision making by a business firm

are as fallows :


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REFERENCES

3. MANAGERIAL ECONOMICS --D.N.DWIVEDI

2. BUSINESS ECONOMICS --

D.D. CHATURVEDIS.L. GUPTASUMITRA PAUL

11. MICRO ECONOMICS --

JHON KENNADY14.MANGERIAL ECONOMICS

MITHANI


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THANK YOU

17068836 introduction to managerial economics

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