What is managerial Economics ?

Introduction - Managerial economics defined as study of economics theories, logic, concept, and tools of
economic analysis applied in the process of business decision makings, in general practice, economic
theories and techniques of economic analysis applied to diagnose the business problems and to evaluate
alternate options and opportunities open to the firm for finding an optimum solution to the problems.

According to davis and Change, managerial economics applies the principle and methods of economics to
analyse problems faced by management of a business or other types of organization and to help find
solutions the advance the best of such organizations

Meaning of managerial Economics

Economics is concerned with the allocation of scarce resources, having alternative uses, among competing
goals (or unlimited ends). Managerial economics is slightly specific in its approach. It studies the economic
aspects of managerial decision making.

It provides the practicing manager with those tools and techniques which are useful in day-to-day decision
making. Like traditional economic, it is concerned with choice and allocation, in a narrow sphere though, it
examines how scarce resources are allocated within a firm.

THE ROLE OF MANAGERIAL ECONOMICS IN MANAGERIAL DECISION MAKING

The basis managerial functions are planning, organizing, staffing, leading & controlling business related
factors, the ultimate object of managerial functions is to ensure maximum returns from the utilized of firms
resources. Manager have to take decisions at each stage of their functions in view of business, details are as ,
How Economic contribute to Managerial Decisions:
The primary function of manager to take appropriate decision & implement them effectively to achieve the
object of the organization to maximize possible extent given the resources application of economics
contribute a great deal to managerial decisions making as it provide guidance in finding an appropriate
solution to the business problems.

Application of Economics to Business Management

- Determine & define Objective

- Identify Business Related issues
- Collection & analysis of relevant Data
- Investing , Developing, Possible course of Action
- Selection of the best Solutions
- Implementation of the Decision

Example :- Mobile Phones

The Firm has already determined its object to introduce a new product, the decision making problem arises
in second stage , identifying business related issues & finding alternatives solution to the problem is very
crucial area of business decision, business issues classified as under

1. Production related issues and

2. Sales related issues

Production & Sales related issues have a very wide perspective, production related issues can be identified
as listed below
- available techniques of production of the planned products
- cost of production associated with each production technique
- supply position of required inputs
- price structure and affordability of input prices
- supply position & prices of competitive substitute
- Availability of foreign exchange if imported inputs are required

Sales related managerial issue's include making assessment of at least the following aspects
- market Size, Demand prospect,
- General market trends also General trend in the introduction of new product
- major existing & potential Competitor & market
- Price of the competitive Products
- Pricing strategy of competitor of the substitute products
- Market structure & degree of the competition

Microeconomics theories applied to internal issues

Microeconomics is the study of individuals, households and firms' behavior in decision making and
allocation of resources. It generally applies to markets of goods and services and deals with individual and
economic issues.

Description: Microeconomics study deals with what choices people make, what factors influence their
choices and how their decisions affect the goods markets by affecting the price, the supply and demand.
Basic managerial issues can be listed as under

- What to Produce

- How to produce -determining size of the firm

- How to produce choice of efficient & affordable technology

- How to Price the product - determining price of the product

- How to Promote Sales of the Product

- How to face price competitor from the competing firm

- How to manage profit & capital

Theory of Consumer Demand :- Theory of consumer demand analysis the decision making behaviour of
the consumers, the decision making behaviour of the consumer relates to behaviour relates to what to
consume, how much consume, how much to buy, how much consumer react to change in price of the
products they consume & price of their substitution, thus the consumer demand theory help in deciding what
to produce.

Theory of production :- Theory of production analyses nature if input- output relationship, it explain how
output changes with change in input - labour or capital given in the company, it provide guidance in the
choice of technology & its maximize the output from the resources of the firm this theory help in deciding
level of production , sizes of the firm, employment of labour & capital

Theory of cost :- Theory of cost analysis the nature & pattern of change in cost production with change in
output, application of cost theory helps in knowing cost behaviour with increase in production and
determining output that minimum average cost production to maximize profit

Theory of price determination :- The theory of price determination offers an analysis of how price is
determine under different kinds of market conditions, market conditions are determine on basis of degree of
competition between firms of the industries, perfect competition, monopolistic competition, oligopoly &
monopoly .

Theory of capital & investment Decision :- Capital is the foundation of business firm & efficient
management of capital is one of the important function which determine success of the firm, the major
issues in capital management are choice of investment avenues, assessing the efficiency & productivity,
theory of capital contribute a great deal in making appropriate investment decision.