You are on page 1of 5

"Managerial Economics is concerned with application of the economic concepts and economic analysis to the problems of formulating rational

managerial decision." ---- Edwin Mansfield

This book is aimed at all managers who need to have an understanding of economics. Economics, though variously defined, is essentially the study of logic, tools and techniques of making optimum use of the available resources to achieve the given ends. Economics thus provides analytic tools and techniques that managers need to achieve the goals of the organization they manage. Therefore, a working knowledge of economics, not necessarily a formal degree, is an essential requirement for managers. Subjects covered here include: Demand Analysis, Elasticity of Demand and Their Estimates, Demand Forecasting, Production Concepts, Cost Analysis, Market, Imperfect Competition - Monopolistic Competition, Inflation, Business Cycle. Managerial Economics dealt with decision making at the managerial state. Various theories of firm behavior, decision making problems and different approaches to arrive at the most appropriate answers to such problems have been presented precisely in this book. Managerial Economics draws heavily from economics, econometrics and operations research. Managerial Economics is a kind of applied microeconomics. It is concerned with the applications of microeconomic concepts to decision making by firms. The firm here includes businesses, government, non-government institutions etc., Businesses has to choose between different production lines among alternative lines available, government has to decide which service is best among different options available, NGI like universities has to decide what kind of disciplines it should open and to what extent each discipline should be operated, from amongst a host of disciplines available in the field of education today. Managerial Economics serves as "a link between traditional economics and the decision making sciences" for business decision-making. different fields of micro

'desire'. Demand for a commodity refers to the quantity of the commodity which an individual household is willing to purchase per unit of time at a particular price. call for an analysis of demand. in economics. cost allocation. The decision which management makes with respect to production. demand has a definite meaning which is different from ordinary use. which in turn is the sum of the demands for the commodity of the individual consumers in the market. The demand for a commodity arises from the consumer’s willingness and ability . we will explain what is demand from the consumers' point of view. A firm is interested in its own profit and/or sales. and in common parlance is considered synonymous with terms like 'want' . and analyze demand from the firm perspective. In this unit. This depends upon the size of the total market or industry demand for the commodity. Analysis of Forecasting Production Analysis and Input Demand Cost and Supply Analysis Price and output determination Investment Analysis Demand and Revenue Analysis Demand is a widely used term. In Managerial Economics we are concerned with demand for a commodity faced by the firm. Thus we begin by examining the theory of consumer demand in order to learn about the market demand on which the demand for the product faced by a particular firm depends. both of which depend partially upon the demand for its product. pricing etc. Demand is one of the crucial requirements for the existence of any business enterprise. However.The major Topics covered in this book are as follows:       Demand and Revenue Analysis Demand Estimation. advertising.

.. Under this method markets are opened in different localities and consumer preference can be ascertained for different parameters (like age. Based on the survey the researcher would be able to quantify the demand function for the product in question. taste of consumer. Market Experiments 3. ethnicity etc.. Delphi & Market research methods are used for long term forecasting.. written questionnaire or with the help of most recent online sites like surveymonkey etc. Regression analysis is used for short and medium term forecasting. The interviews could be planned orally. price expectation and all other factors. For short range purchase the commodity. There are several methods of forecasting available for the above cases. price of related goods—both substitutes and complements. Market experiment dealt with the consumers directly or by simulation method. The Demand Theory postulates that the quantity demanded of a commodity is a function of or depends on not only the price of a commodity.) Regression analysis is the most commonly used method of demand estimation. but also income. Regression Analysis Consumers will be interviewed regarding their consumption patterns in consumer interviews method. Consumer Interviews 2. Demand function is a comprehensive formulation which specifies the factors that influence the demand for the product. sex. Forecasting can be done for short term. medium term and long term demand estimation. Exponential smoothening method and Time series analysis methods are used respectively. This is a model based method which involves special expertise on the part of surveyor. Demand Estimation. Analysis of Forecasting There are three methods of demand estimation 1.

The supply function of a institution relates the quantity of a commodity that the seller is willing and able to supply to the factors that determine that supply. Cost function depend on firm’s production function and Market’s input’s suppl y function. functions are differentiable. it is often assumed that all Cost and Supply Analysis Cost and production analysis are part of the supply side of the market. The supply function can be derived from cost and objective functions. By duality. For convenience. Total. Opportunity cost. Average and Marginal costs and Long-Run and Short-Run Costs. Normal Profit. This is called law of supply. Separable and Common costs. each approach is in principle equivalent to the others. There are several cost concepts described in this book such as Economic cost. Supply of a good varies directly with its own price. This is very important in decision making process. other things remaining the same. the standard approach involves specifying parametric functional forms for a function.Production Analysis and Input Demand Production analysis can be done investigating a production function. Explicit and Implict cost. Using econometric tools. Private and Social costs. Cost function can be estimated using statistical methods. . Thus it is very useful in determining the competitive pricing of the product. a cost function. Fixed and variable costs. and finding a way of estimating the associated parameters using real world data. This function together with demand function determines the products price. Incremental and sunk costs. Cost analysis consists of physical units of output and the cost of production as expressed in nominal terms. or a profit function. Historical and Replacement cost.

the author of “Principles of Economics”.Price and Output Determination Price of the product is determined the demand for and supply of that product. Pricing of the product in various kinds of markets like pure monopoly and perfect competition conditions are clearly explained in this book. Investment Analysis Investment is an important economic activity of using of funds with the expectation of receiving a bountiful of benefits in future. . According to Alfred Marshall. Physical assets and Productive activities. Various techniques of above analysis is presented with layman language. Investment analysis includes capital budgeting. It is possible to cut a cloth by holding one of the scissors fixed. there could be situations under which either demand or supply is playing a passive role. general readers can also benefit from the concepts explained here. Even a layman can understand the book. sensitivity analysis. The language of the book is lucid and no elaborate mathematical equations are dealt. the role of above two determinants is like pair of scissors. Though this book meant for managers. The author stroke the balanced approach in dealing with the concepts from basics and at the same time given plenty of references for the interested reader to get advanced information. private and social benefit analysis. Time value of money concept is explained in this section. and other active role in determining the price of product. It includes commitments of funds for financial assets. Likewise.