MANAGERIAL ECONOMICS

“MANAGERIAL ECONOMICS IS CONCERNED WITH THE APPLICATION OF ECONOMIC CONCEPTS AND

ECONOMIC ANALYSIS TO THE PROBLEMS OF FORMULATING RATIONAL MANAGERIAL DECISIONS”
- EDWIN & MANSFIELD
“IT IS THE INTEGRATION OF ECONOMIC THEORY WITH BUSINESS PRACTICE FOR THE PURPOSE OF
FACILITATING DECISION-MAKING AND FORWARD PLANNING BY MANAGEMENT”
- MILTON SPENCER & LOUIS SIEGELMAN
“MANAGERIAL ECONOMICS CONSISTS OF THE USE OF ECONOMIC MODE OF THOUGHT TO ANALYSE
BUSINESS SITUATION”
- McNAIR & MERIAM
CHARACTERISTICS:
1] IT IS PRAGMATIC AND REALISTIC
2] IT IS MICRO-ECONOMIC IN NATURE
3] IT USES MACRO-ECONOMICS ALSO
4] IT IS NORMATIVE RATHER THAN POSITIVE
5] IT IS GOAL-ORIENTED

SCOPE:
1] DEMAND ANALYSIS
2] DEMAND FORECASTING
3] PRODUCTION ANALYSIS
4] COST ANALYSIS
5] PRICING
6] PROFIT ANALYSIS
7] CAPITAL BUDGETING

ECONOMICS vs MANAGERIAL ECONOMICS

1) Economics is a science which studies human behaviour as a relationship between ends and scarce
means which have alternative uses.
Managerial economics is a science which studies that aspect of managerial bahaviour which is concerned
with economic rationale of decision making
2) Economics is a well established subject
Managerial economics is a new and developing subject
3) Economics is highly theoretical
Managerial economics is basically practical
4) Economics is positive as well as normative
Managerial economics is normative in nature
5) Economics deals with problems of individuals & firms
Managerial economics deals with the problem of firms
6) Economics considers only economic factors.
Managerial economics considers economic as well as non-economic factors.
7) Scope of economics is very wide
Scope of managerial economics is limited
 DEMAND
Demand for a commodity means the quantity of that commodity that people are willing and able to buy at
the given price per unit of time.

FACTORS THAT INFLUECE DEMAND

Price of the Product
Price of Related Goods
a) Price of Complimentary goods
b) Price of Substitute
Income
Distribution of Income
Taste & Preferences
Size of Population
Age Structure
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Weather Condition
Bandwagon Effect
DX = f (PX, PY, Y, popn. . . . . )

LAW OF DEMAND
“OTHER THINGS REMAININING THE SAME, WHEN THE PRICE OF A COMMODITY RISES, ITS DEMAND
FALLS AND WHEN THE PRICE FALLS, DEMAND GOES UP“
DEMAND SCHEDULE
EXCEPTIONS TO THE LAW OF DEMAND

 Expectations about future change in the price

 Giffen goods
 Addiction
 Snob effect
 Veblen effect
 Brand loyalty
 When shortage is feared

A CHANGE IN DEMAND
When demand for a good changes as a result of a change in its price, it is called extention /
contraction in demand.
But
When demand changes due to any factor other than the price, it is called increase / decrease in
demand