SIGNIFICANCE OF

MANAGERIAL ECONOMICS
IN DECISION MAKING
PRODUCTION DECISION
INVENTORY DECISION
COST DECISION
MARKETIG DECISIONS
INVESTMENT DECISIONS
PERSONNEL DECISIONS
PRODUCTION DECISIONS

Supply of goods and services for the sale in a market is

done through production.
Production is an economic activity that is made possible
to get maximum profit.
Rational allocation of resources.
Use the best combination of factors to gain maximum
profit.
INVENTORY DECISIONS

 The amount of goods, raw materials or other resources.

 The decision about how much inventory is required for meeting the demand.
 Production planning is affected by the level of inventory.
COST DECISIONS

• The ability of any firm to produce goods at the lowest cost

is influenced by the competitive ability of the firm.
• Cost reduction and cost control
MARKETING DECISIONS

• Decision regarding target market, market positioning, product

positioning etc..
• Sales decision includes the decision that how much to produce and
sell to get maximum profit.
• Purchase decision includes the decision that how to acquire various
resources at the lowest possible price to maximize profit.
INVESTMENT DECISIONS

Investment decision covers issues like decision regarding:-

 The amount of money for capital investment
 Sources of financing
 Allocation of investments
PERSONNEL DECISIONS

• Man power planning

• Recruiting
• Selection
• Placement
• Training
• Appraisal
 ECONOMIC PRINCIPLES
RELEVANT TO MANAGERIAL
DECISION MAKING
OPPORTUNITY COST PRINCIPLE

• The sacrifice of alternative courses of action for any decision is referred to as an opportunity cost.
• Opportunity cost is defined as the “ the revenue foregone or opportunity lost by not using the resources
in second best alternative use”
• It is also called imputed cost
• Measurement of sacrifice is done by opportunity cost.
• The determination of sacrifices is known as opportunity cost.
• Opportunity cost will be zero, if there are no sacrifices.
CONCEPT OF INCREMENTAL PRINCIPLE

• It computes the effect of various decision alternatives on cost and

revenues.
• It focuses on the changes in the total cost and total revenue due to
changes in the price, product etc..
• Incremental cost-changes in the total cost due to changes in the price,
product, investment etc…
• Incremental revenue-change in the total revenue due to change in price..
MARGINAL PRINCIPLE

• It measures the rate of change in dependent variable.

• The application of marginal concepts in economic theory is referred as
marginal principle.
• It is associated with additional output or return.
DISCOUNTING PRINCIPLE

• Time value of money.

• Discounting is a process of reducing the future values to the present
values.
• The concept explains that money which is received at different future
dates will not be same today.
• Sum of money received today is worth than sum received tomorrow.
• For taking investment decisions, this concept is followed.
TIME PERSPECTIVE PRINCIPLE

• Short run and long run

• Proper balance should be maintained.
• A decision should take into account, both the long term and short
term effects on revenue and cost and maintain the right balance
between the long run and short run perspectives.
SCARCITY PRINCIPLE

• Excess demand of any commodity or service is referred as scarcity.

• Scarcity of resources
• Resource allocation.
• Demand exceeds supply
PRINCIPLE OF RISK AND UNCERTAINTY

• Risk refers to the possibility of the amount of uncertainty in the

business.
• Risk is the way to predict the possibilities of the outcome of
decisions in the future.
• Uncertainty refers to the possibilities of happening and non
happening of resultant income cannot be predicted.
EQUI MARGINAL PRINCIPLE

• Allocation of available resources among the alternatives.

• According to this principle, an input should be allocated in such a way that the
value added by the last unit is the same in all cases.