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MANAGERIAL ECONOMICS

Decision making means the process of selecting one action from two are more alternatives courses of action where forward planning means establishing plans for future. .INTRODUCTION  The prime function of a management executive in a business organization is decision making and forward planning.

.so many things are changing  simultaneously. such assuming that other things remaining the same. The buyer is carried away by the advertisements. incentives and so on. it has the basic features of economics. Managerial Economics consists of the use of economic models of thought to analyze business situations. This assumption is made to simplify the complexity of the managerial phenomenon under study in a dynamic business environment. Since it originates from economics. Nature of managerial economics: Managerial economics is. Further it is assumed that the firm or buyer acts in a rational manner. brand loyalities.Definition: According to Mc Nair and Merium. perhaps the youngest of all the social sciences.

Micro Economics Macro Economics Interdiseplinery Nature of managerial economics Normative Economics Evaluate each alternative Applied in Nature Prescriptive Economics .

Thus. Macro Economics: The Macro Economic Conditions of the Economy are also seen as limiting factors for the firm to operate.Close to Micro Economics: Managerial Economics is concerned with finding the solutions for different Managerial Problems of a Particular Firm. and so on. it is more Close to Micro Economics. In other words. the managerial economist has to aware of the limits set by the macro economic conditions Such as government industrial Policy. inflation. .

it suggests the course of action from the available alternatives for optimal solution. For instance. It does not merely mention the concept. Given a problem and the objectives of the firm. They reflects peoples moral attitudes and are expressions of what a team of people ought to do. . it also explains whether the concept can be applied in a given context or not. 'right’ or ‘wrong’. For example ought to do. it Deals with statements such as government of India should open the economy.Normative Economics: A normative statement usually includes or implies the Words ‘ought’ or should. Prescriptive actions: Prescriptive action is goal oriented. Such statements area based on value judgments and express views of what is‘good ‘or ‘bad'.

accoutancy. sociology etc… . tools and techniques of managerial economics are drawn from different subjects such as economics.orga nisational behavior.Applied in nature: Models are built to reflect the real life complex business situations and these models are of immense help to managers for decision making.psychology.management. The managerial economist can decide which is better alternative to maximize the profits the firm.statistics. Offers scope to evaluate each alternative: Managerial economics provides an opportunity to evaluate each alternative in terms of its costs and revenues.mathematics. Interdisciplinary: The contents.

Demand analysis and forecasting Cost and production analysis Pricing decisions . no uniform pattern has been fallowed by various authors . 1.policies and practices Profit management Capital management .however . the following topics may be said to generally fall under managerial economics. 4. 3. 5.SCOPE OF MANAGERIAL ECONOMICS  As regards the scope of managerial economics. 2.

Managerial decision areas: 1. 4.Make or buy decisions 5.Inventory decisions.Reduction or control of costs Concepts and techniques of managerial economics 3.Investment decision.Production 2.Determination of price of a given product or service.Capital management 7. . Optimum solutions 6.Profit planning and management 8.

Demand analysis and forecasting: Demand analysis helps to identify the and forecasting . are necessary steps for more effective profit planning. Discovering economic costs and being able to measure them . Demand analysis managerial economics. various factors influencing the demand for a firms product and thus provides guidelines to manipulating demand . is essential for business planning and occupies a strategic place in Cost analysis: The factors causing variations in costs must be recognized and allowed for if management is to arrive at cost estimates which are significant for planning purposes . . therefore .

Production and supply analysis: production analysis is narrower in scope than cost analysis. elasticity of supply and factors influencing supply. Policies and practices: Pricing is a very important area of Managerial economics. curves and function. price is the genesis of the revenue of a firm And as such the success of a business firm largely depends on the correctness of the price decisions taken by it . certain important aspects of supply analysis are supply schedule. . production analysis frequently proceeds in physical terms while cost analysis proceeds in monetary terms. law of supply. supply analysis deals with various aspects of supply of a commodity. In fact. Pricing decisions.

Capital management: Briefly capital management implies planning and classes of business controlof capital expenditure of various types and to be thoserelating to the firms capital investments. the most complex and trouble some for business managers are likely . an important point worth considering is the element of uncertainty existing a bout profits because of variations in costs and revenues which in turn. problems. are caused by both internal and external to firm.Profit management: Business firms are generally organized for the purpose of making profits and in the long run. In this connection. profits provide the chief measure of success.