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MB 0026 Set1

MB 0026 Set1

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Published by: lakkuMS on Jun 14, 2009
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MB 0026 Set 1 Page 1
MBA -1 SEM Assignment Set 1
L. Megha Syam 510925494
Q1. Define Managerial Economics and discuss its importance andfunctions.Managerial economics
is a science that deals with the application of variouseconomic theories, principles, concepts and techniques to business managementin order to solve business and management problems.It deals with the practical application of economic theory and methodology todecision making problems faced by private, public and non profit makingorganizations.The same idea has been expressed by Spencer and Seigelman in the followingwords. “
Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management 
”.According to Mc Nair and Meriam, “
Managerial economics is the use of economic modes of  thought to analyze business situation 
”.Brighman and Pappas define managerial economics as,” 
the application of economic theory and methodology to business administration practice 
”. Joel dean is of the opinionthat use of economic analysis in formulating business and management policiesis known as managerial economics.Managerial economics is a highly specialized and new branch of economicsdeveloped in recent years. It highlights on practical application of principles andconcepts of economics in to business decision making process in order to findout optimal solutions to managerial problems. It fills up the gap betweenabstract economic theory and managerial practice. It lies midway betweeneconomic theory and business practice and serves as a connecting link betweenthe two.
Features of managerial Economics
It is a new discipline and of recent origin2.
It is a highly specialized and separate branch by itself.3.
It is basically a branch of microeconomics and as such it studies theproblems of only one firm in detail.4.
It is mainly a normative science and as such it is a goal oriented andprescriptive science.5.
It is more realistic, pragmatic and highlights on practical application of various economic theories to solve business and management problems.
MB 0026 Set 1 Page 2
It is a science of decision making. It concentrates on decision makingprocess, decision models and decision variables and their relationships.7.
It is both conceptual and metrical and it helps the decision maker byproviding measurement of various economic variables and theirinterrelationships.8.
It uses various macro-economic concepts like national income, inflation,deflation, trade cycles etc to understand and adjust its policies to theenvironment in which the firm operates.9.
It also gives importance to the study of noneconomic variables havingimplications of economic performance of the firm.10.It uses the services of many other sister sciences like mathematics,statistics, engineering, accounting, operation research and psychology etcto find solutions to business and management problems.
Importance of the study of Managerial Economics
Managerial Economics does not give importance to the study of theoreticaleconomic concepts. Its main concern is to apply theories to find solutions to day–today practical problems faced by a firm.Significance of the study Managerial Economics1.
It gives guidance for identification of key variables in decision makingprocess.2.
It helps the business executives to understand the various intricacies of business and managerial problems and to take right decision at the righttime.3.
It provides the necessary conceptual, technical skills, toolbox of analysisand techniques of thinking and other such most modern tools andinstruments like elasticity of demand and supply, cost and revenue,income and expenditure, profit and volume of production etc to solvevarious business problems.4.
It is both a science and an art.5.
It helps the business executives to become much more responsive,realistic and competent to face the ever changing challenges in themodern business world.6.
It helps in the optimum use of scarce resources of a firm to maximize itsprofits.7.
It also helps in achieving other objectives a firm like attaining industryleadership, market share expansion and social responsibilities etc.8.
It helps a firm in forecasting the most important economic variables likedemand, supply, cost, revenue, price, sales and profit etc and formulatesound business polices.9.
It also helps in understanding the various external factors and forceswhich affect the decision making of a firm. Thus, it has become a highlyuseful and practical discipline in recent years to analyze and find solutionsto various kinds of problems in a systematic and rational manner.
MB 0026 Set 1 Page 3
Functions of a Managerial Economics
A Managerial Economics helps a manager in analyzing and finding answers tobusiness and managerial problems. It provides in-depth knowledge of thesubject.The major functions of Managerial Economics are Decision making and forwardplanning.
1. Decision making
 ‘Decision’ suggests a deliberate choice made out of several possible alternativecourses of action after carefully considering them. The act of choice signifyingsolution to an economic problem is economic decision making. It involveschoices among a set of alternative courses of action.Decision making is essentially a process of selecting the best out of manyalternative opportunities or courses of action that are open to a management.
2. Forward planning
The term ‘planning’ implies a consciously directed activity with certainpredetermined goals and means to carry them out. It is a deliberate activity. Itis a programmed action. Basically planning is concerned with tackling futuresituations in a systematic manner.Forward planning implies planning in advance for the future. It is associated withdeciding the future course of action of a firm. It is prepared on the basis of pastand current experience of a firm. It is prepared in the background of uncertainand unpredictable environment and guess work.
Q2. What is elasticity of demand? Explain the different degree of priceelasticity with suitable examples.Elasticity of Demand
Elasticity of demand is generally defined as the responsiveness or sensitivenessof demand to a given change in the price of a commodity. It refers to thecapacity of demand either to stretch or shrink to a given change in price.Elasticity of demand indicates a ratio of relative changes in two quantities.ie,price and demand. According to prof. Boulding. “
Elasticity of demand measures the responsiveness of demand to changes in price 
”. In the words of Marshall,” 
The elasticity (or responsiveness) of demand in a market is great or small according to as the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price 
Kinds of elasticity of demand
Price Elasticity Of Demand2.
Cross Elasticity Of Demand3.
Income Elasticity Of Demand4.
Promotional Elasticity Of Demand5.
Substitution Elasticity Of Demand

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