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Managerial Economics (B.Com)

MODULE I
Introduction
Definition of Economics
a) Wealth Definition
b) Welfare Definition
c) Scarcity Definition
d) Growth Definition

a) Wealth Definition
According to Adam’s Smith, “Economics is the study of wealth, how
wealth is produced and distributed.”

b) Welfare Definition
According to Alfred Marshall, “Economics is the study of mankind in
the ordinary business of life.”

c) Scarcity Definition
According to Lionel Robbins, “Economics is the science which studies
human behaviour as a relationship between ends and scarce means
which have alternative uses.”

d) Growth Definition
Economics is the study of how people and society end up choosing
with or without the use of money to employ scarce productive
resources that could have alternate uses to produce various
commodities and distribute them for consumption, now or in the
future, among various persons or groups in the society.
Managerial Economics
According to Spencer and Sieglman, “Managerial economics is the
integration of economic theory with business management for the
purpose of facilitating decision making and forward planning by
management.”
Objectives of managerial economics
1. To integrate economic theory with business practices.
2. To minimize risk and uncertainty.
3. To help in profit maximization.
4. To helps in demand and sales forecasting.
5. To make all round development of a firm.
6. To apply economic concept to solve business problems.
Nature/Characteristics of Managerial economics
1. It is micro economic in nature.
2. It also relies on macro-economics.
3. It is pragmatic.
4. It is normative.
5. It is management oriented.
6. It is multidisciplinary.
Importance of managerial economics
1. It provides tool and techniques for managerial decision making.
2. It guides the managerial economists.
3. It helps in formulating business policies.
4. It is a tool for demand forecasting.
5. It is a tool for profit planning.
6. It supplies data for analysis and forecasting.
 Functions of Managerial Economist
1. Sales forecasting
2. Market research
3. Production scheduling
4. Investment appraisal
5. Environmental forecasting
6. Security management analysis
7. Advise on foreign exchange management.
Scope of managerial economics
Operational / Internal issues Environmental / external issues
Demand analysis and General trend in production.
forecasting.
Cost analysis Trends in working of financial
institutions.
Pricing decision Trends in labour and capital
market.
Profit analysis Magnitude and trends in foreign
trade.
Production and supply analysis Government economic policies.

Functions of Managerial Economist

1. Sales forecasting
2. Market research
3. Production scheduling
4. Investment appraisal
 5. Environmental forecasting
6. Security management analysis
7. Advise on foreign exchange management.
Responsibilities of Managerial Economist
1. To bring reasonable profit to the company.
2. To make accurate forecast.
3. To participates in public debates.
4. To earn full status in the business firm.
5. To establish contact with individual and data sources.
6. To prepare speeches for business executives.
Relationship of managerial economics with other subjects
1. Economics
The theory of economics is applied in practical business situation for
decision making and forward planning.
2. Statistics
Statistical data are used in business analysis to arrive at decisions.
3. Mathematics
In managerial economics, algebra, calculus and geometry are
extensively used.
4. Operation research
Operation research deals with optimisation. It applies the principles
of statistics, planning and mathematics to arrive at optimisation.
5. Accounting
Accounting data is widely used in managerial economics. The
management needs accounting information for decision making.
Basic economic tools in managerial economics
1. Elasticity of demand
It is the degree of responsiveness in the quantity demanded to a
change in price.
2. Opportunity cost
It is the cost seen in terms of the opportunity foregone.
3. Marginal principle
Marginal cost and marginal revenues are crucial in pricing decisions.
4. Time perspective
Different decisions have to be taken at different periods of time.
5. Discounting
It is important to calculate present values of future cash flows. For
this purpose, principle of discounting is used
6. Capital budgeting
The process of business undertakes to evaluate potential major
projects or investments.
Managerial economics as a tool for decision making and forward
planning
Decision making
Decision making is the process of selecting one action from two or
more alternative course of actions making.
Forward planning
It is the process of making plans to take into account what is likely to
happen or be needed in the future.
Steps in Decision Making
1. Identification of objectives.
2. Statement of problems to be studied.
3. Listing of various alternatives.
4. Selection of best alternative.
5. Implementation.
Important Areas of Decision Making
1. Selection of product.
2. Selection of product mix.
3. Selection of method of production.
4. Product line decision.
5. Determination of price and quantity.
6. Replacement decision.
7. Make or buy decision.
8. Shut down decision.

Difference between economics and managerial economics

Economics Managerial Economics
Deals with both macro and Deals with micro aspects only.
micro aspects.
Wider scope. Narrow scope.
Deals with theoretical aspects. Deals with practical aspects.
Study both the firm and Study problems of firm only.
individual.
Both positive and normative Only a normative science.
science.

This is just a short note based on syllabus of Managerial economics.

For full details of the subject, please refer text book.

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