MANAGERIAL ECONOMICS-

A FEW FUNDAMENTALS
DR. SK LAROIYA
UNIVERSITY OF DELHI
AND
AMITY BUSINESS SCHOOL
 MANGERIAL ECONOMICS-
WHY IT IS A MUST FOR A PRACTICING
MANAGER ?

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ECONOMIC ANALYSIS
MANAGERIAL ECONOMICS
BUSINESS ECONOMICS

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 MANAGERIAL ECONOMICS
IS THE INTEGRATION OF ECONOMIC THEORY
WITH
BUSINESS PRACTICE
FOR
THE PURPOSE OF
DECISION MAKING AND FORWARD PLANNING
BY THE MANAGEMENT
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 BASIC INGREDIENTS:

ECONOMICS PROVIDES A SET OF CONCEPTS

THESE CONCEPTS FURNISH THE MANAGER

WITH
TOOLS AND TECHNIQUES OF ANALYSIS

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 ECONOMIC ANALYSIS IS AN AID
TO
UNDERSTAND
BUSINESS PRACTICES
IN A GIVEN ENVIRONMENT AND THEREBY
MAKE BUSINESS DECISIONS WHICH ARE
PRIMARILY ECONOMIC IN NATURE
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 DECISION MAKING IS A BASIC FUNCTION OF
MANAGEMENT

ECONOMICS THEREFORE IS A VALUABLE

INPUT
IN A DECISION MAKING PROCESS OF
MANAGEMENT
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WHAT IS ECONOMICS?

• OBJECTIVE FUNCTION
• LIMITED RESOURCES
• ALTERNATIVE USES
• OPTIMAL ALLOCATION OF RESOURCES
• FEASIBILITY AND OPTIMALITY

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MICRO ECONOMIC ANALYSIS

MACRO ECONOMIC ANALYSIS

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 ECONOMIC ANALYSIS-

• STATIC
• COMPARATIVE STATIC
• DYNAMIC

ECONOMIC ANALYSIS IS THE BASIS OF

ECONOMIC POLICY

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 BUSINESS DECISIONS:

ESSENCE OF AN ECONOMIC DECISION IS THE

SOLUTION TO AN ECONOMIC PROBLEM

PROBLEM OF CHOICE

ECONOMIC DECISION MAKING

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 NATURE OF DECISIONS:

• INTUITIVE AND SCIENTIFIC

• STRATEGIC AND TACTICAL
• DECISIONS UNDER VARYING DEGREES OF
UNCERTAINTY

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 MANAGEMENT FUNCTION THAT INVOLVES
STRATEGIC DECISIONS MAKING, IS CALLED
COORDINATING MANAGEMENT

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 MANAGEMENT FUNCTION THAT INVOLVES
ROUTINE WORK IS CALLED SUPERVISORY
MANAGEMENT

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ECONOMIC MODELS:

ECONOMISTS
RELY ON
ECONOMIC THEORIES OR MODELS
(THESE ARE USED INTERCHANGEABLY)
TO ANALYSE
REAL WORLD ISSUES SUCH AS ECONOMIC EFFECTS
OF OUT SOURCING
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TO DEVELOP A MODEL, ECONOMISTS GENERALLY
FOLLOW THE FOLLOWING STEPS:

• DECIDE ON ASSUMPTIONS TO BE USED IN

DEVELOPING THE MODEL
• FORMULATE A TESTABLE HYPOTHESIS
• USE ECONOMIC DATA TO TEST THE HYPOTHESIS
• REVISE THE MODEL IF IT FAILS TO EXPLAIN WELL THE
ECONOMIC DATA
• RETAIN THE REVISED MODEL TO HELP ANSWER
SIMILAR ECONOMIC QUESTIONS IN FUTURE

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SCOPE AND STRUCTURE OF ECONOMIC ANALYSIS:

• DEMAND ANALYSIS-
-STRUCTURE OF DEMAND –
-SENSITIVITY OF DEMAND TO VARIOUS
PARAMETERS SUCH AS PRODUCT PRICE,
CONSUMERS’ INCOME, PRICES OF OTHER
PRODUCTS, ADVERTISEMENTS ETC.
-DEMAND FORECASTING

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• COST ANALYSIS
• PRODUCTION ANALYSIS
• OBJECTIVES OF A BUSINESS FIRM
• PRICING AND OUT PUT DECISIONS UNDER
ALTERNATIVE MARKET STRUCTURES
• INVESTMENT ANALYSIS

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• ECONOMIC POLICY FRAMEWORK
• NATIONAL INCOME AGGREGATES
• BUSINESS ENVIRONMENT
• MODELS OF INCOME DETERMINATION
• MONEY MARKET
• CAPITAL MARKET
• FOREIGN EXCHANGE MARKET
• FISCAL AND MONETARY POLICIES

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 FUNDAMENTAL CONCEPTS:

• FUNCTIONAL RELATIONSHIPS
• DERIVATIVES AND RELATED CONCEPTS
• MARGINAL ANALYSIS
• CONCEPT OF TIME PERSPECTIVE

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• OPPORTUNITY COST
• EQUILIBRIUM- STABLE AND UNSTABLE
• DISCOUNTING PRINCIPLE
• SCARCITY AND CHOICE

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ROLE OF A BUSINESS ECONOMIST:
• NATIONAL AND INTERNATIONAL LEVEL STUDIES
• INDUSTRY LEVEL STUDIES
• PRODUCT LINE RESEARCH
• SALES FORECASTING
• ECONOMIC ANALYSIS OF COMPETING
COMPANIES
• PRICING PROBLEMS OF INDUSTRY

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• CAPITAL PROJECTS
• PRODUCTION PROGRAMS AND ANALYSIS
• INVESTMENT ANALYSIS
• ADVICE ON TRADE, FOREIGN EXCHANGE
• ANALYSIS OF PREVAILING ECONOMIC TRENDS

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