CHARACTERISTIC

S AND SCOPE

DR. I. THAIGARAJAN &

CHITRA RANGAMANI
 Managerial Economics

Chief characteristics and significance

TODAY’S TOPIC
Scope of the subject

Objectives of the firm

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WHAT IS
MANAGERIAL
ECONOMICS

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 Managerial Economics is the application of
economic theory and methodology to
DEFINITION decision-making problems faced by both
public and private institutions” – James
McGuigan and R Charles Moyer

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 Managerial Economics is micro-economics in character

Managerial Economics uses the “Theory of the Firm” and it also applies the Profit
Theory which is part of Distribution theories in Economics

CHARACTERISTIC Managerial Economics is pragmatic. Avoids difficult abstract issues of economic

S theory but involves complications ignored to face the overall situation in which
decisions are made

Managerial economics is prescriptive rather than descriptive

Macro Economics is also useful to Managerial economics as it provides an

intelligent understanding of the environment in which the business is to operate

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 1. Demand Analysis and Forecasting

SCOPE 2. Cost Analysis

3. Production and Supply Analysis
4. Pricing Decisions, Policies and Practices
5. Profit Management
6. Capital Management

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 A major part depends on accurate
demand estimates
DEMAND
ANALYSIS AND
FORECASTING
Demand analysis identifies various
factors influencing demand and
provides guidelines to manipulate the
demand

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 A study of economic costs, combined with the data
drawn from the firms’ accounting records can yield

COST ANALYSIS significant cost estimates that are useful for management
decisions
Factors causing variations in costs must be recognized
An element of costs uncertainty exists because all the
factors determining cost are not always known or
controllable
Discovering economic costs and being able to measure
them are necessary for more effective profit planning,
cost control and for good pricing practices

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 Frequently
precedes in
Narrower in
physical terms
scope than cost
whereas cost
analysis
analysis is in
PRODUCTION monetary terms
AND SUPPLY
ANALYSIS
Deals with Supply Analysis
different deals with
production various aspects
functions and of supply of a
managerial uses commodity

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 Pricing is a very import area of
Managerial Economics
PRICING
DECISIONS,
POLICIES AND Genesis of the revenue of a firm
PRACTICES

Success of a business firm depends on

the pricing decision taken by it

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 Firms are organised for the purpose of
making profits
PROFIT Uncertainty exists because of variation in
MANAGEMENT costs and revenues
Uncertainties are caused by factors both
internal and external

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 • The most complex problem for a business
manager is the capital investment
CAPITAL • Disposal requires considerable time and
MANAGEMENT labour
• Top level decision required

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