MANAGERIAL

ECONOMICS
:INTRODUCTION
The emergence of managerial economics as a separate course of
management studies can be attributed to at least three factors-
a)growing complexity of business-decision making process due to
changing market conditions and business environment
b)b) the increasing use of economic logic, concept, theories, and
tools of economic analysis in the process of business-decision
making and
c)c) rapid increase in demand for professionally trained
managerial manpower.
According to McNair and Meriam, “the integration of
economic theory with business practice for the purpose of
facilitating decision-making and forward planning by
management.”
“Managerial Economics is concerned with the application of
economics concepts to the problems of formulating
rational decision-making.”- Mansfield
Economics- Business
Theory and Management-
Methodology Decision
Problems

Managerial
Economics-
Application of
Economics to
solving business
problems

Optimal Solutions to
Business Problems
 The Scope of Managerial Economics
Economics has two branches- 1) Microeconomics 2) Macroeconomics. Both micro
and macro economics are applied to business analysis and decision making- directly
or indirectly. Managerial Economics comprises therefore both micro and macro
economic theories.
Microeconomics Applied to Operational Issues-
Operational problems are of internal nature. They include all those
problems which arise within the business organization and fall wihin the purview and
control of the management. Some of the basic internal issues are
1)choice of business and the nature of product,
2) Choice of size of the firm
3) Choice of technology
4)How to promote sales
5) How to face price competition
6) How to decide on new investment
7) How to manage profit and capital
8) How to manage inventory
The microeconomic theories which deal with most of these
questions are following-
Theory Of Demand
Theory of Production and Production Decisions
Analysis of Market Structure and Pricing Theory
Profit Analysis and Profit Management
Theory of Capital and Investment Decisions
Macroeconomics Applied to Business Environment
Environmental issues pertain to the general business
environment in which a business operates. They are related to
overall economic, social and political atmosphere of the
country. The factors are as follows-
1)The type of economic system of the country
2)General trends in production, employment, income, prices, saving and investment
3)Structure and trends in the working of financial instititions
4)Trends in labour and capital market
5)Governments economic policies like industrial, monetary and fiscal policy.
6)Political environment
7)Influence of MNCs on the domestic market
 Managerial Economist
A managerial economist can play a very
important role by assisting the management
in using the increasingly specialized skills and
sophisticated techniques which are required
to solve the difficult problems of successful
decision-making and forward planning.
 Specific Function performed by
Managerial Economist
1. Sales forecasting
2. Industrial market research
3. Economic analysis of competing companies
4. Pricing problems of Industry
5. Capital projects
6. Production Programs
7. Security/investment analysis and forecasts
8. Advice on trade and public relations
9. Advice on primary commodities
10. Advice on foreign exchange
11. Economic analysis of agriculture
12. Analysis of Underdeveloped Economies
13. Environmental Forecasting
 Relationship Other Disciplines
Economic Theory
Microeconomics Quantitative Analysis
Theory of firm Numeric and algebraic analysis
Theory of consumer behaviour (demand) Optimization
Production and cost theory (supply) Discounting and time value of money
Market structure and competition techniques
Price theory Statistical estimation and forecasting
Macroeconomics Game theory
National income and output
Business cycle
Inflation

Managerial Economics

Solutions to Managerial Decision Making

Quantity and quality of product
Price of product
Marketing Management
Financial Management
Human Resource Management
Research and Development