MANAGERIAL ECONOMICS
 Deals with the application of the economic
concepts, theories, tools and methodologies TO
SOLVE PRACTICAL RPOBLEMS
 Combination of economics theory and
managerial theory
 Helps the manager in decision-making and acts
as a link between practice and theory
 Referred as BUSINESS ECONOMICS and branch
of ECONOMICS that applies MICRO-ECONOMIC
analysis to decision methods of business
It bridges economic theory and economics in practice
- Heavily from quantitative techniques such as
regression analysis, correlation and calculus
- To OPTIMIZE business decision given the firm’s
objectives and given constraints imposed by
scarcity
SALVATORE, application of economic theory and tools of
analysis decision science to examine
DOUGLAS, application of economic principles and
methodologies to decision making process
 Means to an end, most efficient way of
allocating their scarce
 Economic theory, decision sciences and business
functions
RELATIONS TO ECONOMIC THEORY
 ECONOMIC THEORY seeks to predict and explain
economic behavior
 Begins with MODEL--- abstract of many details
MICROECONOMICS- individual decision-making units
individual consumers (descriptive)
MACROECONOMICS- total aggregate level of output,
income, employment, consumption and investment
(prescriptive)
The main branch of ECONOMICS is MICRO
ECONOMICS
 Theory of firm, consumer behavior, production
and cost, price and market stricture and
competition
RELATIONSHIP TO DECISION SCIENCES
 Tools and techniques used in managerial
economics
 Mathematical economics and econometrics
 Express and analyze economic models
 Estimate and test economic models using
empirical data
NATURE OF MANAGERIAL ECONOMICS
1. DECISION- choice of the best among many
possible alternatives
 Goal-setting
 Come up with alternatives
 Choose the best plan
2. ROLE OF MANAGERIAL ECONOMICS IN DECISION
MAKING- analyze and compare alternative solutions to
find the most likely to achieve goals
3. MICROECONOMICS- combining microeconomics and
management practices and deals with problem related
to a particular org
MAIN THEORIES OF MANAGERIAL ECONOMICS
1. DEMAND THEORY- quantity demanded of products at
different price levels (help the enterprise determine the
relationship between demand and price)
2. PRODUCTION THEORY- involves selection of
production organization form and combination of
production factors
3. COST THEORY- nature and cost function of different
cost
4. MARKET THEORY- enterprise choose to achieve
expected goals under different market conditions
3 ANALYTHICAL METHODS USED IN MANAGERIAL
ECONOMICS
1. EQUILIBRIUM ANALYSIS- combination of resources
and choice of behaviors to obtain the maximum benefits
(determine proportional relation of each factor under
the condition of considering constraints)
2. MARGINAL ANALYSIS- change in output caused by
each unit of input (analyzes the impact of additional unit
of product on the total profit)
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M= change in F (X) / change in X  Economic Environment- GDP, economic policies
which indirectly impact the firm
3. MATHEMATICAL MODEL ANALYSIS- abstraction of
 Social- employment conditions, trade unions,
complex reality which makes problems simple and
consumer cooperatives
intuitive
 Political- authoritarian/democratic, political
BASIC PROCESS OF DECION MAKING stability and attitudes toward private sector

1. Define the problem INFLUENCE OF MANAGERIAL ECONOMICS

2. Determine the objectives
- Potential as an aid to decision making
3. Identify possible solutions
- To make good decision and justify
4. Select the best possible solution
- Cost-benefit at stake in decision making process
5. Implement best decision
- Imperative to use quantitative and rational
SCOPE OF MANAGERIAL ECONOMICS based methods
- Pace of technological development is increasing
Managerial Economics is widely applied in organizations
with the impact of new economy
deal with different business issues
CONCLUSION
 THEORY OF DEMAND- emphasizes consumer
behavior towards a product, consideration of  Managerial economics is MICRO ECONOMIC in
wants and needs character
- DEMAND AND SUPPLY ANALYSIS- schedules,  Largely uses trhat body pf economic concepts
curve and functions, law of demand and and principles
limitations  PRAGMATIC --- avoids difficult abstract issue of
 THEORY OF PRODUCTION AND PRODUCT economic theory
DECISION- concerned with the volume of  PRESCRIPTIVE IN NATURE- suggest course of
production, process, capital and labor action to a managerial problem
- PRODUCT ANALYSIS- analyze production  Integrates economic theory, decision science
efficiency and functional areas to business Administration
 PRICING THOERY AND ANALYSIS OF MARKET
STRUCTURE- price determination of product
keeping in the mind of external aspects
- PRICING ANALYSIS- price determination,
method, product line and forecasting
 PROFIT ANALYSIS AND MANAGEMENT- aim for
profit maximization
 THEORY OF CAPITAL AND INVESTMENT
DECISION- proper allocation of the
organization’s capital and making investments
profitable
- CAPITAL BUDGETING- examine a firm’s capital
purchasing decision
- RISK ANALYSIS- uncertainty models, decision
rules, and risk qualification

MACROECONOMICS APPLIED TO BUSINESS

ENVIRONMENT

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