UNIT I – PART - A

1. What is Managerial Economics? (April 2012,)

Managerial economics is the "application of the economic concepts and economic analysis to
the problems of formulating rational managerial decisions". managerial economics means the
application of economic theory to the problem of management. Managerial economics may
be viewed as economics applied to problem solving at the level of the firm.
2. What is optimisation?( APRIL 2013)
Optimisation is the best use of available scarce resources in such a way that the satisfaction
level is maximum. So we can say minimum usage of resources and maximum level of output.
it is often impossible to optain precise information about the pattern of future revenues costs
and interest rates. therefore, the process of economic optimization is futile.
3. Define sales maximisation.( APRIL 2013) . (NOV 2016)
Sales maximisation is a theoretical objective of a firm which involves selling as many units
of a good or service as possible, without making a loss. This means sacrificing some short-
term profit with a view to achieving a longer term gain. For example, while seasonal ‘sales’
may result in lower profits, space is created as stocks are cleared, and more profitable lines
can be introduced.
4. Is managerial economics related to OR and OB? If yes, give reasons. (APRIL
2014)
Yes, It is related to OR and OB. Linear programming deals with those programming
problems where the relationship among the variables is linear. It is a useful tool for the
managerial economist for reducing transportation costs and allocating purchase amongst
different supplies and site depots. Dynamic programming helps in solving certain types of
sequential decision problems. Input-output analysis is a technique for analysing inter-industry
relation. Queueing is a particular application of the statistical decision theory. It is employed
to get the optimum solution.

5. What does managerial economics stresses upon? (APRIL 2014)

The managerial economics stress upon such as risk, demand production, cost, pricing, market
structure etc.
6. Define managerial economics.(APRIL 2015, APRIL 2016, APRIL 2017, NOV
2016)
Prof. Evan J Douglas defines Managerial Economics as “Managerial Economics is concerned
with the application of economic principles and methodologies to the decision making
process within the firm or organization under the conditions of uncertainty”
7. What is profit maximisation? (APRIL 2015, APRIL 2016)
Profit maximisation predicting the behaviour of business firms in the real world, as well as in
predicting the behaviour of price and output under different market conditions.
Profit maximisation has been the prime objective of classical business organizations. To
maximise profit, certain conditions must be met, the first being that at optimum profit-
maximising point, the firm’s marginal revenue must equal marginal cost. Second, to ensure
that maximum profit is attained, the second derivative of the profit function is expected to be
less than zero.
8. What is the principle of consumer equilibrium? (APRIL 2016)
The principle of consumer equilibrium is the consumer can either buy X or retain his money
income Y. Under these conditions, the consumer is in equilibrium when the marginal utility of
X is equated to its market price (pX).
Symbolically we have,
MUX = pX
If the marginal utility of X is greater than its price, the consumer can increase its welfare by
purchasing more units of X. Similarly, if the marginal utility of X is less than its price, the
consumer can increase his total satisfaction by cutting down the quantity of X and keeping
more of his income unspent. Therefore, he attains the maximization of his utility when MUX
= pX.

9. What is meant by decision - making? (NOV 2012)

Decision making by management is purely economic in nature, because it involves choices
among a set of alternatives alternative course of action. The optimal decision making is an act
of optimal economic choice, considering objectives and constraints. This justifies an
evaluation of management decisions through concepts, precepts, tools and techniques of
economic analysis.
10. Define capital management. (NOV 2012)
A managerial accounting strategy focusing on maintaining efficient levels of both
components of working capital, current assets and current liabilities, in respect to each other.
11. State the elements of managerial economics. (NOV 2013)
(a) Economics provides a set of concepts and precepts.

(b) These concepts and precepts furnish us the tools and techniques of analysis.

(c) Economic analysis is an aid to understand business practice in a given environment and
thereby to make business decisions which are primarily economic in nature.

(d) Decision making is the basic function of Management.

(e) Economics is, therefore, a valuable guide to Management.

12. Define decision making. (NOV 2013)

Decision making is the process of making a choice between a number of options and
committing to a future course of actions.
Decision making is the process of making business decisions involving money. All economic
decisions of any consequence require the use of some sort of accounting information, often in
the form of financial reports.

13. Identify the role of cost in managerial decision making. (NOV 2013)
Cost, revenue and profit are the three most important factors in determining the success of
business. A business can have high revenue, but if the costs are higher, it will show no profit
and is destined to go out of business when available capital runs out. Managing costs and
revenue to maximize profit is key for any entrepreneur.
14. How do managerial economist provide ways of thinking? (NOV 2013) or Identify
the role of managerial economist in forward planning. (NOV 2014)
The managerial economist has to gather economic data, analyse all relevant
information about the business environment and prepare position papers on issues facing the
firm and the industry. In the case of industries prone to rapid theological advances, the
manager may have to make continuous assessment of tl1e impact of changing technology.
The manager' may need to evaluate the capital budget in the light of short and long-
range financial, profit and market potentialities. Very often, he also needs to prepare speeches
for the corporate executives. It is thus clear that in practice, managerial economists perform
many and various functions. However, of all these, the marketing functions, i.e., sales force
listing an industrial market research, are the most important.
15. Is Managerial economics related to accounting? (NOV 2013)
Yes. There exits a very close link between Managerial economics and the concepts
and practices of accounting. Accounting data and statement constitute the language of business.
Accounting was treated as just bookkeeping.
Cost and revenue information and their classification are influenced
considerably by the accounting profession. Managerial economics and accounting familiar
with generation, interpretation, and use of accounting data. The focus of accounting within the
enterprise is fast changing from the concept of book keeping to that of managerial decision
making.
16. Define economic analysis. (NOV 2014)
The study of forces that determine the distribution of scarce resources. Economic analysis
provides insight into how markets operate, and offers methods for attempting to
predict future market behavior in response to events, trends, and cycles. Economic analysis is
also used by governments to determine tax rates and evaluate the financial health of the
nation or state.

17. What is the main objective of managerial economics? (NOV 2014)

 Integrating economic theory with business practice.
 Using economics tools to analyze business situations.
 Applying economic principles to solve business problems.
 Using economic ideas for crisis management.
 Facilitating demand analysis and demand forecasting.
 Allocating scarce resources for optimizing returns.
 Enabling risk taking and uncertainly bearing.
 Helping in profit maximization.
 Pursuing the larger objectives of the firm other than profit maximization.
 Formulating short-term and long-term business strategies.
18. List out any two roles of managerial economist. (NOV 2015)
Economists may analyze issues such as consumer demand and sales to help a company
maximize its profits. Economists also work for research firms and think tanks, where they
study and analyze a variety of economic issues.

19. What is macro-economic condition? (NOV 2015)

National or state-level economic factors. These influence the whole aggregated economy. Changes in
employment levels, gross national product (GNP), and prices, be it deflation or inflation, are typical
influences.

20. What is discounting principle? (NOV 2015)

The discounting principle requires looking at the value of a sum of money in the present day
and comparing it to the value of the money after an amount of time. The situation where we
will use the money at a future date.