MANAGERIAL

ECONOMICS
ECONOMICS

Study of allocating resources to satisfy human wants

Study of production, consumption, and distribution of human activities

Study on how to deal scarcity

MANAGERIAL ECONOMICS
• Managerial economics is a branch
of economics involving the
application of economic methods
in the managerial decision-making
process. Economics is the study of
the production, distribution and
consumption of goods and
services. Managerial economics
involves the use of economic
theories and principles to make
decisions regarding the allocation
of scarce resources.
 CHAPTER 2
OPTIMAL DECISIONS USING
M A R G I N A L A N A LY S I S
 • An optimal decision is
a decision that leads to at
least as good a known or
expected outcome as all
OPTIMAL other available decision
DECISIONS options. It is an important
concept in decision theory.
In order to compare the
different decision
outcomes, one commonly
assigns a utility value to
each of them.
 • Marginal analysis is the
process of considering
small changes in a
MARGINAL decision and
determining whether a
ANALYSIS given change will
improve the ultimate
objective
 1. Company is
EXAMPLE OF
considering
OPTIMAL
increasing the volume
DECISIONS USING
of goods that they
MARGINAL
produce
ANALYSIS
2. Siting location
A SIMPLE MODEL OF THE FIRM
The decision setting we will investigate can be described as follows:

1. A firm produces a single good or service for a single market with the objective of
maximizing profit.

2. Its task is to determine the quantity of the good to produce and sell and to set a sales
price

3. The firm can predict the revenue and cost consequences of its price and output
decisions with certainty.
 MARGINAL
REVENUE AND
MARGINAL
COST
MARGINAL REVENUE
• Marginal revenue is the amount of additional revenue that
comes with a unit increase in output and sales. The
marginal revenue (MR) of an increase in unit sales from Q0
to Q1 is
 MARGINAL COST
• Marginal cost (MC) is the additional cost of producing an
extra unit of output. The algebraic definition is
S E N S I T I V I T Y
A N A LY S I S
 SENSITIVITY ANALYSIS

Sensitivity analysis determines how

different values of an independent variable
affect a particular dependent variable under
Sensitivity analysis is used in the business
a given set of assumptions. In other words,
world and in the field of economics. It is
sensitivity analyses study how various
commonly used by financial analysts and
sources of uncertainty in a mathematical
economists and is also known as a what-if
model contribute to the model's overall
analysis.
uncertainty. This technique is used within
specific boundaries that depend on one or
more input variables.
EXAMPLE OF SENSITIVITY ANALYSIS