INTRODUCTION TO MANAGERIAL ECONOMICS

Prof. Priyanka Dukhande

 DEFINITION
• According to Mc Nair and Meriam,
“ME is the use of economic modes of thought to analyse business situation”

• According to Mansfield
“ME is concerned with application of economic concepts and economic analysis to the
problems of formulating rational managerial decisions”
Year Sales – Mumbai Mgmt Decision
MC. D
2014 100 Cr Price is reasonable

2015 110 Cr Happy meal X

2016 120 Cr Fries

2017 125 Cr Quality

INCREASE PRICE
2018 130 Cr
2019 140CR
70CR
2020 150CR
 NATURE: BUSINESS PROFIT=
AFFECT
• Micro economics in nature: individual
• Related to normative Economics: ideal– actual:solut
• Conceptual in nature: concept
• Utilises some theories of macro economics: whole system”
PESTLE”
• Problem solving in nature
• Deals with the application of economics
• Study of allocation of resources
 SCOPE
• Demand Analysis and Forecasting
• Cost and Production analysis
• Pricing Decision
• Profit Management
• Capital Management
• Allied Disciplines
 FUNDAMENTAL PRINCIPLES

Opportunities Incremental Marginal Equi-Marginal

Cost concept Principle Principal

Concept of
Discounting Scarcity and
Time
Principle Choice Principle
Perspective
 FUNDAMENTAL PRINCIPLES
Opportunity cost Sacrifice of 2nd best alternative source
Incremental Cost Change: Revenue (I) and Cost (D)
Marginal Cost Additional Cost associated with extra item (1 unit)
Equi-marginal VMP1= VMP2
 OPPORTUNITY COST PRINCIPLE
• Job = Wadala
TATA group = 50k pm = Sion….. Nearby

Reliance group = 70k = panvel …. sacrificing

• Forgone the 2nd best alternative of revenue…..opportunity cost

 INCREMENTAL CONCEPT
• Increment = change increase
• Change
• Revenue: increasing : last year----more
• cost:
• CIPLA Ltd - Pharma

Year Revenue Cost (decrese) Profit

(INCREASE)
 MARGINAL CONCEPT
• 500 Rs. To kinjal ……….. Brochure 5 college’s

• 1 college = Rs. 100/-………. 5*100= 500

• Phone….. 6 college + 100rs

• 6th = additional college = additional cost

 EQUI-MARGINAL CONCEPT
• Equi = equal…..marginal = additional cost of 1 unit
a

VMP1 = VMP2 Cost effectiveness

Inputs
 CONCEPT OF TIME PRESEPECTIVE
• DECISION MAKING = COST + REVENUE = SHORT
RUN + LONG RUN
• SHORT RUN = IMMEDIATE EFFECT
• LONG RUN = STABLE EFFECT = AFTER YEARS
DISCOUNTING PRINCIPLE
APPLICATIONS’ OF ME

Production decision

Inventory decision

Cost Decision

Marketing Decision

Investment Decision

Personnel Decision
 DOMINICK SALVATOR MODEL OF APPLICATION
OF ECONOMICS TO BUSINESS DECISION
MAKING

Optimal Solution to
managerial decision problem

Use of economic concept and

decision science

Management decision Decision

Economic concept --- Theory problem– product price and Sciencies
of consumer behaviour and output, make or buy, ---
market structure production technique, Forecastin
inventory level g, Game
theory