Professional Documents
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COLLEGE
POSTGRADUATE PROGRAM
MANAGERIAL ECONOMICS
LECTURE NOTE
Ermias Melaku(Assistant Professor)
2022
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Chapter One
Introduction
Managerial decisions are an important part in the working
organisation.
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Introduction........
Rapid changes in technology, greater focus on innovation in products as
well as processes that command influence over marketing and sales
techniques have contributed to the escalating complexity in the business
environment.
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Introduction......
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Introduction......
Goods, services, and productive resources that are scarce have a
positive price. Positive prices reflect the competitive interplay
between the supply of and demand for scarce resources and
commodities.
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Introduction......
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Introduction......
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Introduction......
Entrepreneurial ability refers to the ability to recognize profitable
opportunities, and the willingness and ability to assume the risk
associated with marshalling and organizing land, labor, and capital to
produce the goods and services that are most in demand by consumers.
People who exhibit this ability are called entrepreneurs.
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Introduction......
OPPORTUNITY COST
The concepts of scarcity and choice are central to the discipline of
economics. These concepts are used to explain the behaviour of both
producers and consumers.
It is important to understand, however, that in the face of scarcity
whenever the decision is made to follow one course of action, a
simultaneous decision is made to forgo some other course of action.
When a high school graduate decides to attend college or university, a
simultaneous decision is made to forgo entering the work force and
earning an income
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Introduction......
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Scarcity and opportunity cost
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MACROECONOMICS Vs MICROECONOMICS
Scarcity, and the manner in which individuals and society make
choices, are fundamental to the study of economics.
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Introduction......
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Introduction......
For the most part, macroeconomics focuses on the variables over which
the managerial decision maker has little or no control but may be of
considerable importance in the making of economic decisions at the
micro level of the individual, firm, or industry.
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????Macroeconomic issues are beyond the control of managers. Then,
why would it be essential for managerial decision makers to be aware
and knowledgeable of such macro issues?
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Introduction......
By contrast, microeconomics is the study of the behaviour and interaction
of individual economic agents. These economic agents represent
individual firms, consumers, and governments.
Microeconomics deals with such topics as profit maximization, utility
maximization, revenue or sales maximization, production efficiency,
market structure, capital budgeting, environmental protection, and
governmental regulation.
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MANAGERIAL ECONOMICS
WHAT IS MANAGERIAL ECONOMICS?
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MANAGERIAL ECONOMICS.....
Almost any business decision can be analysed with managerial economics
techniques. However, the most frequent applications of these
techniques are as follows:
• Risk analysis: Various models are used to quantify risk and asymmetric
information and to employ them in decision rules to manage risk.
• Production analysis: Microeconomic techniques are used to analyse
production efficiency, optimum factor allocation, costs and economies of
scale. They are also utilised to estimate the firm's cost function.
• Pricing analysis: Microeconomic techniques are employed to examine
various pricing decisions. This involves transfer pricing, joint product
pricing, price discrimination, price elasticity estimations and choice of
the optimal pricing method.
• Capital budgeting: Investment theory is used to scrutinise a firm's
capital purchasing decisions.
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MANAGERIAL ECONOMICS.....
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MANAGERIAL ECONOMICS.....
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MANAGERIAL ECONOMICS.....
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Characteristics of ME
1. Microeconomics: It studies the problems and principles of an individual
business firm or an individual industry. It aids the management in
forecasting and evaluating the trends of the market.
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Characteristics of ME
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Characteristics of ME
5. Takes the help of macroeconomics: Managerial economics incorporates
certain aspects of macroeconomic theory. These are essential to
comprehending the circumstances and environments that envelop the
working conditions of an individual firm or an industry.
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Characteristics of ME
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Characteristics of ME
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Scope of ME
The scope of managerial economics includes following subjects:
1. Theory of demand
2. Theory of production
3. Theory of exchange or price theory
4. Theory of profit
5. Theory of capital and investment.
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Importance of managerial economics
Spencer and Siegelman have described the importance of managerial
economics in a business and industrial enterprise as follows:
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Summary Questions
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