MANAGERIAL ECONOMICS

ECONOMICS is the study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources. Management is the discipline of organizing and allocating a firm’s scarce resources to achieve its desired objectives.
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Economics and Managerial Decision Making
Management is the discipline of organizing and allocating a firm’s scarce resources to achieve its desired objectives.  Involves the ability to organize and administer various tasks in pursuit of certain objectives.

Managerial economics is the use of economic analysis to make business decisions involving the best use (allocation) of an organization’s scarce resources.

Managerial Economics Defined

The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.

These two definitions clearly point to the relationship between economics and managerial decision making. We can combine the two business decisions involving the best use of an organization’s scarce resources

Managerial economics provides a systematic, logical way of analyzing business decisionsboth present and future decisions.

Economic theory helps managers understand real world business problems

Managerial Decision Problems
Economic theory Microeconomics Macroeconomics Decision Sciences Mathematical Economics Econometrics

MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS

The objective of this chapter is to show how managers can use economic analysis in making decisions that will achieve the firm’s goals – usually the maximization of profit. Managers cannot expect to succeed without understanding how market forces shape the firm’s ability to earn profit.

In making decisions, managers must essentially deal with the following questions listed .
1.

a. b. c. d. e. f. g.

What are the economic conditions in a particular market in which we are or could be competing ? In particular : Market structure ? Supply and demand conditions ? Technology ? Government regulations ? International dimensions ? Future conditions ? Macroeconomic factors ?

2. Should our firm be in business ?

3. If so, what price and output

levels should we set in order to maximize our economic profit or minimize our losses in the short run ?

MANAGERIAL ECONOMICS

MARKETING

FINANCE

STRATEGY

One of the best ways to link the economic problem of making choices under conditions of scarcity with tasks of a manager is to consider the view put forth by prof. Robert Anthony that a manager is essentially a person who is responsible for the allocation of a firm’s scarce resources.

Management involves the ability to organize and administer various tasks in pursuit of certain objectives. An important part of a manager’s job is to moniter and guide people in an organization. In the words of Peter Drucker , who has been called ‘the founding father of the science of management’,

It is “ management” that determines what is needed and what has to be achieved (in an organization)….. Management is work. Indeed, it is the specific work of a modern society, the work that distinguishes our society from all earlier ones…… As work, management has its own skills, its own tools, its own techniques.