ECO 307

MANAGERIAL
ECONOMICS
Chapter 1
Introduction to
Managerial Economics
1.1 What Is Managerial Economics

ECONOMICS
❑ is the study of the production, distribution, and consumption of goods and
services.
❑ is the study of choice related to the allocation of scarce resources.

The purpose of managerial economics is to provide economic terminology and

reasoning for the improvement of managerial decisions.

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1.1 What Is Managerial Economics

2 Conceptual Approaches to the Study of

Economics
1. Microeconomics studies phenomena related to goods and services from
the perspective of individual decision-making entities—that is, households
and businesses. Macroeconomics approaches the same phenomena at an
aggregate level, for example, the total consumption and production of a
region.
2. Macroeconomic approach provides measures and theories to understand
the overall systematic behavior of an economy.
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1.2 Why Managerial Economics Is Relevant for Managers

❑ Managerial Economics assists the managers of a firm in a rational solution of

obstacles faced in the firm’s activities. It makes use of economic theory and
concepts. It helps in formulating logical managerial decisions.

❑ Managerial Economics is a science dealing with effective use of scarce resources.

It guides the managers in taking decisions relating to the firm’s customers,
competitors, suppliers as well as relating to the internal functioning of a firm. It makes
use of statistical and analytical tools to assess economic theories in solving practical
business problems.

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1.2 Why Managerial Economics Is Relevant for Managers

❑ Managerial Economics is associated with the economic theory which

constitutes “Theory of Firm”. Theory of firm states that the primary aim of
the firm is to maximize wealth. Decision making in managerial economics
generally involves establishment of firm’s objectives, identification of
problems involved in achievement of those objectives, development of
various alternative solutions, selection of best alternative and finally
implementation of the decision.

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Managerial Economics Is a Tool for Improving Management
Decision Making

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1.3 Managerial Economics Is Applicable to Different Types of
Organizations

❑ The organization providing goods and services will often be called a “business” or a
“firm,” terms that connote a for-profit organization.
❑ Managerial economics is relevant to nonprofit organizations and government
agencies as well as conventional, for-profit businesses.

A for-profit organization is one that operates with the goal of making money. Most
businesses are for-profits that serve their customers by selling a product or service. The
business owner earns an income from the for-profit and may also pay shareholders and
investors from the profits.
A nonprofit organization is one that qualifies for tax-exempt status by the IRS because its
mission and purpose are to further a social cause and provide a public benefit. Nonprofit
organizations include hospitals, universities, national charities and foundations.

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 THANK YOU!
The ultimate purpose of economics, of course, is to understand and promote
the enhancement of well-being. -Ben Bernanke