NATURE AND SCOPE OF MANAGERIAL  Helps in studying what is going on with in

ECONOMICS the firm

 How best to use the limited resources
 Refers to the integration of economic
theory with business practices. That Positive VS Normative Approach:
branch of economics which serve as link a) Positive approach - what is/was/will be
between abstract theory and managerial b) Normative approach - what ought to be
practices.
 Economics as a science is concerned with Integration of Economic Theory and
the problem of allocating resources among Business Practice:
competing ends. Economics provide the a) Understand the actual behavior of the
tools and concepts which explain the business
behavior pattern of economic variables b) Estimate and predict the economic
such as demand, supply, price and quantities and relationship
competition. c) Decision making and forward planning
d) Significance of the environment
 Meaning of managerial: the term mgmt
refers to the functions of planning. Main FEATURES OF MANAGERIAL ECONOMICS
function of mgmt are decision making and
forward planning a) Managerial economics is micro
 Managerial economics is the application of economics in character
economic theory and quantitative methods b) Help of macro economics
to managerial mgmt decision making c) Pragmatic
d) Normative
Meaning of Managerial Economics e) Conceptual and metrical
f) Theory of firm
 Managerial Economics is that part of
g) Wise choices
economic theory which deals with the
h) Multidisciplinary
application of economic tools and concepts
to the solution of business problems or the SCOPE OF MANAGERIAL ECONOMICS
problems of resource allocation among the
competing ends. Scope is very wide as it involves application of
economic concepts to problems we face in reality
 Edwin Mansfield,” managerial economics
in business.
is concerned with the ways in which
manager should make decisions in order Deals with Four Problems in both Decision
to maximize the effectiveness or Making and Forward Planning:
performance of the organizations they  Resource allocation for optimal results
manage.  Inventory queuing problem
 Joel Dean,” the purpose of managerial  Pricing problems
economics is to show how economic
 Investment problems
analysis can be used in formulating
managerial policies. Theory of Demand Analysis and Forecasting
a) Demand determinants
Nature of Managerial Economics b) Demand forecasting
c) Demand theory explains the consumer
 Managerial Economics behavior
 Concerned with decision making of d) How do the consumer decide to buy or not
economic nature e) Quantity
 Goal oriented and perspective f) Behavior of consumer when there is
 Pragmatic: concerned with application change in the price,tastes etc
 Both conceptual and metrical g) Demand forecasting is essential
 Fundamental nature of managerial formanagerial planning
economics
Theory of productions and production
 Economic theory
decisions
 Macroeconomics: deals with aggregate
 Also known as theory of firms
economic concepts relating to the entire
economy. Provide the framework in which  Relationship between inputs and outputs
the firm operates.  Returns to factor in short period
 Free enterprise economy  Optimum size of the plant,size of the total
 A rapid technological and economic output amount of capital and labour
changes Analysis of Market Structure and Pricing
 Cyclical fluctuations Theory
 Monetary and fiscal policy A. Prices are determined under different
market conditions
FUNDAMENTAL NATURE OF MANAGERIAL
B. Role of advertising
ECONOMICS
C. Helpful in determining the price policy of
Microeconomics: the firm and price theory and
 Deals with the problems of individual firms
 productiontheory optimum size of the theory to decision making traditional economics
firm consists of:

Cost Analysis Microeconomics:-known as price theory,

A. Determination of cost,methods of the main source of concepts and analytical tool
estimating the cost for managerial economics
B. Cost volume profit analysis
C. Covers cost concepts,classification,cost Macroeconomics:-the main contribution
output relationships,economies and is in the field of forecasting. The modern theory
diseconmies of income, employment and trade cycle has great
implications.
Profit Analysis and Profit Management
A. Conditions of uncertainty Managerial Economics with Statistics
B. Demand for the product and input prices  Statistics provide the basis for empirical
etc testing of the theory and help in
C. Guides the measurement and mgmt of acceptance of generalization
profits and making allowances for the  Provide the most useful and reliable data
risk and calculating return on for business decision making
capitalemployed
 Useful measure for measurement for
Theory of Capital and Investment Decisions functional relationship
A. Capital is the foundation of the business  Theory of probability upon which
B. Choice of investment projects statistical methods are based provides the
C. Assessing the efficiency of capital logic for dealing with uncertainty in
D. Allocation of capital decision making
E. Capital budgeting etc  Measures of central tendency, measures of
dispersion, correlation and regression are
Inventory Management widely used.
A. Mgmt of inventory
B. Optimum investment in inventory Managerial Economics with Mathematics
C. Business cycles
 As managerial economics is both
IMPORTANCE OF MANAGERIAL conceptual and metrical
ECONOMICS IN DECISION MAKING  Mathematics helps in estimating various
economic relationships, predicting
Financial Decision: costing, budgeting,
relevant economic quantities and using
accounting, auditing, tax planning, portfolio
them in decision making and forward
composition, capital structure, and dividend
planning.
distribution
 Geometry, algebra, calculus are
Production Decisions: product, inventory extensively used
control, choice of technology, plant location,  Operation research is used in estimating
plant layout and production planning, scheduling demand and determining the prices of the
and maintenance mgmt. solutions.

Personnel Decision: recruitment, selection, Managerial Economics and Accounting

training, transfer, retirement etc.
 Closely inter-related
Marketing Decisions: Target territory, Sales  Accounting means the recording of
volume, sales force sales promotions, advertising, financial operations of a business firm
packaging etc.  A business manager needs a lot of
accounting information data for logical
Miscellaneous Decisions:-information system,
analysis in decision making and policy
Public relations, etc.
formulations
TOOLS AND TECHNIQUES  Management accounting has been
developed to correct managerial decision
A. Knowledge of the concepts making.
B. Ideas from other subjects
C. Revenue to the govt Managerial Economics and Operation
D. Social benefits Research
E. Decision making in complex environment
 Operation research is the application of
F. Helpful to new age managers
mathematical techniques to solving
RELATION OF MANAGERIAL ECONOMICS business problems and also concerned
WITH OTHER DISCIPLINE with efficient use of scarce resources.
 Managerial economics uses the logic of
Managerial Economics and Traditional
economics, mathematics and statistics for
Economics
undertaking effective decisions while
Managerial economics is viewed as special operational research techniques based on
branch of economics application of economic these way of thinking are being used to
solve decision making
  Managerial economics is an academic d) pricing policy
subject focuses on understanding and
Main types of decision are price output
analyzing problems and decision making.
decision ,demand decision, choice of technique of
Operational research is functional activity
productions. Advertising decisions, long run
and is a tool for managerial economist.
production decisions, investment decisions etc.
Managerial Economics and Psychology and
Managerial economics and forward planning
Sociology
 It means preparing perspective plan of
 Both psychology and sociology provide the
development of the organization. This
basis of behavioral theory of the firm as
involves capital budgeting, obtaining land
given by Simon, Cyert and March
for future expansion.
Williamson.
 Managerial economics applies
 The study of what motivates an individual
multidisciplinary approach, utilizing
to work and the study of the group
analytical and decision making tools
behavior is essential for decision making
derived from accounting, finance,
Managerial Economics and Decision Making marketing, administrative, economic
theory, etc.
Decision making means the process of selecting
the suitable action among several alternative
courses of actions. Like:

a) what product to be manufactured

b) quantity and quality
c) production techniques