MANAGERIAL ECONOMICS

MANAGERIAL ECONOMICS= ECONOMICS+MANAGEMENT

ECONOMICS
DEFINATION Study of nature and uses of national wealth. By ADAM SMITH The science which studies human behaviour as a relationship between ends and scarce resources which have alternative uses. By Prof Lionel Robbins

Salient Features of economics 1.Unlimited wants 2.Scarce resources 3.Alternative uses 4.Choice

Microeconomics: The study of individual consumer or firm is called microeconomics.

Macroeconomics: The study of aggregate or total level of economic activity in a country is called macroeconomics.

MANAGEMENT
DEFINATION Management is the science of getting things done through the people in formally organized groups. Management includes number of functions: Planning Organizing Staffing Directing Controlling

MANAGERIAL ECONOMICS
DEFINATION The integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management. Spencer and Siegelman. The application of economic theory and methodology to business administration practice. Brigham and Pappas. The study of how to direct scarce resources in a way that most efficiently achieves a managerial goal. Michael R. Bay

NATURE OF MANAGERIAL ECONOMICS

Close to microeconomics Operates against the backdrop of macroeconomics Normative statements Prescriptive actions Applied in nature Offers scope to evaluate each alternative Interdisciplinary Assumptions and limitations

SCOPE OF MANAGERIAL ECONOMICS

Demand decision InputInput-output decision PricePrice-output decision ProfitProfit-related decisions Investment decisions Economic forecasting and forward planning

MANAGERIAL ECONOMICS AND DECISION MAKING

STEPS INVOLVED IN DECISION MAKING: 1.Establishing objectives 2.Defining problems 3.Identification of variables and their relation to the problem 4.Collection of data 5.Identification of alternatives 6.Evaluation and screening of alternatives 7.Implement and monitor the decision

MANAGERIAL DECISION AREAS Production Reduction or control of costs Concepts and techniques of managerial economics Determination of price of a given product or service Make or buy decisions Inventory decisions Capital management Profit planning and management Investment decisions Optimum solutions

OPPORTUNITY COST CONCEPT

The opportunity cost of anything is the next best alternative that could be produced instead by the same factors or by an equivalent group of factors costing the same amount of money Benham.

IMPORTANCE OF OPPORTUNITY COST Determination of factor prices Determination of value Allocation of the resources

STATIC AND DYNAMIC ECONOMICS.

STATIC ECONOMICS Movement in one direction specific in time and extent but there is no uncertainty in it. When the speed and magnitude of economic transactions is normal it is said that the economy is static even though it is moving in particular direction at given speed. It is the economic analysis based on the stationary state of economy.

DYNAMIC ECONOMICS

Continuous changes are the characteristic features of dynamic economics Dynamic economics has capacity to forecast future economic events and to study the present economic problems on the background of the events in the past and on the basis of future forecast

POSITIVE AND NORMATIVE

Positive Economics
 Focuses on what is .  Analyzes actual, measurable outcomes.  Does not impose value judgments, person feelings or convictions.  Positive economics is economics as a science

Normative Economics
 Focuses on what someone thinks ought to be or should be .  Makes ethical judgments value judgments

MARGINAL ANALYSIS A technique used in microeconomics by which very small changes in specific variables are studied in terms of the effect on related variables and the system as a whole.

Process of identifying the benefits and costs of different alternatives by examining the incremental effect on total revenue and total cost caused by a very small (just one unit) change in the output or input of each alternative. Marginal analysis supports decision-making decisionbased on marginal or incremental changes to resources instead of one based on 'totals' or 'averages.'

OPTIMISATION ECONOMIC MODEL