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1.Introduction:
Nature and Scope of Managerial Economics. Role of managerial economics in decision making. Managerial Economics and Econometric Models. Opportunity cost. Discounting Principle. Time perspective. Incremental reasoning. Equi-marginal concept. Economics of risk and uncertainty Asymmetric information - Market Response Bench Marking and Total Quality Management. Objectives of a firm. Traditional, Managerial and Behavioral theories of the firm.
3.Theory of Firm :
ME
In Economic Theory:
Single Goal. Rational consumer aims at maximization of utility and a firm tries to maximize its profit. ET is based on Ceteris Paribus i.e. given conditions with certainty of actions or events or within the framework of axioms.
ET cant provide clear cut solutions but helps in arriving at a better decision. ME helps bridge the gap between purely analytical problems dealt in ET and decision problems faced in real business.
MAIN CHARACTERISTICS OF ME Applied Micro economics Science as well as art. Concerned with the firm's behavior in optimal allocation of resources. Provides tools for best alternatives and competing activities in any productive sector. Incorporates both Micro and Macro Economics for optimal decisions. Helps Manager to understand the intricacies of the business problems which make the problem solving easier and quicker. contd.
Managerial Economics:
Uses analytical tools of mathematical and econometrics with two main approaches Descriptive Models are data based in describing and exploring economic relationships of reality in simplified abstract sense. Describe the economic forces that shape the internal and external environments of a business firm. Prescriptive models are the optimizing models to guide the decision makers about set goal. Prescribe rules for managerial decision-making that furthers the objective of the firm. DM provide a building block for developing optimizing models in solving the managerial and business problems. Helps in depth analysis of key elements involved in the business.
IS ME POSITIVE OR NORMATIVE?
+ve economics explains the economic phenomenon as what is, what was and what will be. Normative economics prescribes what it ought to be. ME is a blending of pure or +ve science with applied or normative science. +ve when confined to statements about causes and effects and to functional relations of the economic variables. It is normative when it involves norms and standards, mixing them with the cause effect analysis. ME is a mix of both consideration in scientific approach.
A Decision-Making Model
Objectives
Social constraints
Evaluation
Scope of ME
Objectives of a firm Demand Analysis and Forecasting Cost and Production Analysis Pricing Decisions, Policies and Practice Profit Management Capital Budgeting Linear Programming and the theory of games Market structure and conditions Strategic Planning Others Areas (Macroeconomic Management, Fiscal and Monetary Policy, Impact of Liberalization, Globalization, privatization, marketization, international changes, environmental degradation, socio-political, cultural and external forces on management)
Scope of ME