MANAGERIAL ECONOMICS :INTRODUCTION

concept. the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management. Managerial Economics is concerned with the application of economics concepts to the problems of formulating rational decision-making.The emergence of managerial economics as a separate course of management studies can be attributed to at least three factorsa) growing complexity of business-decision making process due to changing market conditions and business environment b) b) the increasing use of economic logic. theories.Mansfield . and tools of economic analysis in the process of business-decision making and c) c) rapid increase in demand for professionally trained managerial manpower. . According to McNair and Meriam.

EconomicsTheory and Methodology Business ManagementDecision Problems Managerial EconomicsApplication of Economics to solving business problems Optimal Solutions to Business Problems .

Managerial Economics comprises therefore both micro and macro economic theories. Both micro and macro economics are applied to business analysis and decision making.The Scope of Managerial Economics Economics has two branches. Some of the basic internal issues are 1)choice of business and the nature of product. They include all those problems which arise within the business organization and fall wihin the purview and control of the management. 2) Choice of size of the firm 3) Choice of technology 4)How to promote sales 5) How to face price competition 6) How to decide on new investment 7) How to manage profit and capital 8) How to manage inventory .1) Microeconomics 2) Macroeconomics. Microeconomics Applied to Operational IssuesOperational problems are of internal nature.directly or indirectly.

The microeconomic theories which deal with most of these questions are followingTheory Of Demand Theory of Production and Production Decisions Analysis of Market Structure and Pricing Theory Profit Analysis and Profit Management Theory of Capital and Investment Decisions Macroeconomics Applied to Business Environment Environmental issues pertain to the general business environment in which a business operates. monetary and fiscal policy. employment. The factors are as follows1) The type of economic system of the country 2) General trends in production. They are related to overall economic. social and political atmosphere of the country. saving and investment 3) Structure and trends in the working of financial instititions 4) Trends in labour and capital market 5) Governments economic policies like industrial. prices. income. 6) Political environment 7) Influence of MNCs on the domestic market .

Managerial Economist A managerial economist can play a very important role by assisting the management in using the increasingly specialized skills and sophisticated techniques which are required to solve the difficult problems of successful decision-making and forward planning. .

6. 10. 5. 12. 8. Sales forecasting Industrial market research Economic analysis of competing companies Pricing problems of Industry Capital projects Production Programs Security/investment analysis and forecasts Advice on trade and public relations Advice on primary commodities Advice on foreign exchange Economic analysis of agriculture Analysis of Underdeveloped Economies Environmental Forecasting . 13. 3. 9. 2.Specific Function performed by Managerial Economist 1. 7. 11. 4.

Relationship Other Disciplines Economic Theory Microeconomics yTheory of firm yTheory of consumer behaviour (demand) yProduction and cost theory (supply) yMarket structure and competition yPrice theory Macroeconomics yNational income and output yBusiness cycle yInflation Quantitative Analysis yNumeric and algebraic analysis yOptimization yDiscounting and time value of money techniques yStatistical estimation and forecasting yGame theory Managerial Economics Solutions to Managerial Decision Making yQuantity and quality of product yPrice of product yMarketing Management yFinancial Management yHuman Resource Management yResearch and Development .

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