MANAGERIAL ECONOMICS

Chapter 1
Introduction: Nature & Scope

Introduction
Economy
The word economy comes from a Greek word for one manages a household.
The economy encompasses everything related to the
production and consumption of goods and services in an area
or region.

Society and Scarce Resources

The management of societys resources is
important because resource are scarce.
Scarcity means that society has limited
resources and therefore cannot produce all
the goods and services people wish to have.
Scarcity implies choice and choice implies

Economics : Science of scarcity

Scarce resources for society :
Land
Labour (L)
Capital (K)
Skill
Scarce resources of a business unit :
Men
Machine
Material
Money
Mineral
Unlimited desires : Profitability ()

Unlimited choice

Limited resources

scarcity

What to produce?

How to produce?

For whom to produce?

What is Economics
Economics is the study of how society
manages its scarce resources.
Economics as a science is concerned with
the problem of allocation of scarce
resources
among
competing
ends
(Desires).

Circular Flow of Economic Activity

Micro & Macro Economics

Microeconomics focuses on the behaviour of
the individual actors on the economic stage i.e.
firms and individuals and their interaction to
markets. Managerial economics should be
thought of as applied microeconomics.
Macroeconomics is the study of economic
system as a whole. It includes techniques for
analyzing changes in total output, total
employment,
consumer
price
index,
unemployment rate, exports and imports.
Macroeconomics addresses questions about
the effect of changes in investment,
government spending, tax policy on exports,
output, employment, prices

Introduction to Managerial Economics

What is Managerial Economics
Managerial economics is the branch of
economics which deals with managing the
scarce resources of a firm.
In managerial economics, the emphasis is
upon the firm, the environment in which
the firm finds itself, and the decisions
which individual firms have to take.
Managerial economics uses the tools and
techniques of economic theory for effective
and efficient utilization of economic
resources, in order to optimize the
profitability of a business organization.

Nature of Managerial Economics

Managerial Economics is the integration of

economic theory with business practice for the
purpose of facilitating decision making and
forward planning by the management.
-Spencer & Seigelman

Managerial Economics Model

Scope of Managerial Economics

Demand
Analysis
Forecasting
Production Analysis
Cost Analysis
Pricing and Output
Profit Management

and

Demand

Characteristics of Managerial Economics

Managerial Economics is basically microeconomic in characteristics.
Managerial Economics takes the help of
macro-economics to understand and adjust
to the environment in which firm operates.
Managerial Economics follows normative
school of thought rather than positive school.
Managerial Economics is prescriptive rather
than descriptive, in approach.
It is both conceptual (qualitative) as well as
metrical (quantitative).
The contents of Managerial Economics are
based mainly on the theory of the firm.

Relationship of ME with other disciplines

Mathematics : Geometry , algebra, calculus ,
determinants , vectors.
Operations Research: Linear Programming ,
Queuing
Statistics : Theory of probability
Traditional Economics :