Manager - a person responsible for controlling or
administering all or part of a company or similar
organization.
Manager - a person responsible for supervising and
motivating employees and for directing the progress
of an organization.
Economics - a social science concerned with the
production, distribution, and consumption of goods
and services. It is a science that studies the human
behaviour as a relation between unlimited ends and
the limited means.
Managers and Economics
Ends = the human needs/wants
Means = resources
Hence, Economics helps us to fulfill the unlimited
human needs by using the limited and scarce
resources.
Now these needs and means can vary according to
the situation and from person to person.
For an individual consumer like me:
● I may wish to buy a novel, buy some stationary and
some chocolates - ends
● But my income, say pocket money is limited - my
means..
Similarly, for a factory owner (producer) :
● He wishes to earn maximum profit - ends.
● He has to use his plant, machinery etc to produce
goods and services - these resources are his means
to achieve the ends.
Macroeconomics - branch of Economics that
focuses on the overall level of economic activity,
changes in the price level and the amount of
unemployment by analyzing group or aggregate
behavior in different sectors of the economy.
Microeconomics - branch of Economics that
analyzes the decisions that individual consumers,
firms and industries make as they produce, buy and
sell goods and services.
NATURE OF MANAGERIAL ECONOMICS
Managerial Economics as a Science
• Science is a Systematic body of Knowledge. It is
based on the methodical observation. Managerial
economics is also a science of making decisions with
regard to scarce resources with alternative
applications. It is a body of knowledge that
determines or observes the internal and external
environment for decision making.
• In science any conclusion is arrived at after
continuous experimentation. In Managerial economics
also policies are made after persistent testing and
trailing. Though economic environment consists of
human variable, which is unpredictable, thus the
policies made are not rigid. Managerial economist
takes decisions by utilizing his valuable past
experience and observations.
• Science principles are universally applicable.
Similarly policies of Managerial economics are also
universally applicable partially if not fully. The policies
need to be changed from time to time depending on
the situation and attitude of individuals to those
particular situations. Policies are applicable
universally but modifications are required periodically.
Managerial Economics as an Art
• Managerial economist is required to have an art of
utilising his capability, knowledge and understanding
to achieve the organizational objective. Managerial
economist should have an art to put in practice his
theoretical knowledge regarding elements of
economic environment.
Managerial Economics has components of micro
economics
§ Managers study and manage the internal
environment of the organization and work for the
profitable and long-term functioning of the
organization. This aspect refers to the micro
economics study. The managerial economics deals
with the problems faced by the individual organization
such as main objective of the organization, demand
for its product, price and output determination of the
organization, available substitute and complimentary
goods, supply of inputs and raw material, target or
prospective consumers of its products etc.
Managerial Economics has components of macro
economics
§ None of the organization works in isolation. They
are affected by the external environment of the
economy in which it operates such as government
policies, general price level, income and employment
levels in the economy, stage of business cycle in
which economy is operating, exchange rate, balance
of payment, general expenditure, saving and
investment patterns of the consumers, market
conditions etc. These aspects are related to macro
economics.
SCOPE OF MANAGERIAL ECONOMICS
Managerial Economics has a more narrow scope - it
is actually solving managerial issues using micro-
economics. Wherever there are scarce resources,
managerial economics ensures that managers make
effective and efficient decisions concerning
customers, suppliers, competitors as well as within an
organization. The fact of scarcity of resources gives
rise to three fundamental questions-
• What to produce?
• How to produce?
• For whom to produce?
To answer these questions, a firm makes use of
managerial economics principles.
Managerial Economics
● In general, it is a Microeconomics applied to
business decision making.
● Applies economic tools and techniques to business
and administrative decision making.
● Helps managers recognize how economic forces
affect organizations and describes the economic
consequences of managerial behavior.
● Links economic concepts and quantitative methods
to develop vital tools for managerial decision making.
Importance of Managerial Economics to Managers
We live in a world with scarce resources, which is why
economics is a practical science. We cannot have
everything we want. Further, others want the same
scarce resources we want. Organizations that provide
goods and services will survive and thrive only if they
meet the needs for which they were created and do
so effectively. Since the organization’s customers also
have limited resources, they will not allocate their
scarce resources to acquire something of little or no
value. And even if the goods or services are of value,
when another organization can meet the same need
with a more favorable exchange for the customer, the
customer will shift to the other supplier. Put another
way, the organization must create value for their
customers, which is the difference between what they
acquire and what they produce. Applying economics
to management has a competitive advantage in
creating value.
Importance of Managerial Economics to Managers
● helps managers arrive at a set of operating rules
that aid in the efficient use of scarce human and
capital resources.
● offers a comprehensive application of economic
theory and methodology to management decision
making.
MANAGERIAL ECONOMIST - a person who
manages business efficiently using various economic
theories and methodologies. He supports the
management team in better decision making through
his analytical skills and specialized techniques.
A Managerial Economist is also termed as an
economic advisor or business economist. He is
responsible for analyzing various internal and external
environmental forces that influence the functioning of
business organizations. Managerial economist makes
several successful business forecasts and updates
the management team regarding the economic trends
from time to time.
Managerial Economist always remains in touch with
all the latest economic developments and
environmental changes for informing the
management. He has an efficient role in earning
reasonable profits on invested capital as it supplies all
relevant information which helps in making proper
plans and strategies. Managerial economist has three
important roles in every business organization:
Demand analysis and forecasting, capital
management and profit management.
ROLES OF MANAGERIAL ECONOMIST
1. He studies the economic patterns at macro-level
and analysis it’s significance to the specific firm he is
working in.
2. He has to consistently examine the probabilities of
transforming an ever-changing economic environment
into profitable business avenues.
3. He assists the business planning process of a firm.

4. He also carries cost-benefit analysis.

5. He assists the management in the decisions

pertaining to internal functioning of a firm such as
changes in price, investment plans, type of goods
/services to be produced, inputs to be used,
techniques of production to be employed, expansion/
contraction of firm, allocation of capital, location of
new plants, quantity of output to be produced,
replacement of plant equipment, sales forecasting,
inventory forecasting, etc.

6. In addition, a managerial economist has to analyze

changes in macro- economic indicators such as
national income, population, business cycles, and
their possible effect on the firm’s functioning

7. He is also involved in advicing the management on

public relations, foreign exchange, and trade. He
guides the firm on the likely impact of changes in
monetary and fiscal policy on the firm’s functioning.

8. He also makes an economic analysis of the firms

in competition. He has to collect economic data and
examine all crucial information about the environment
in which the firm operates.

9. The most significant function of a managerial

economist is to conduct a detailed research on
industrial market.

10. In order to perform all these roles, a managerial

economist has to conduct an elaborate statistical
analysis.

11. He must be vigilant and must have ability to cope

up with the pressures.

12. He also provides management with economic

information such as tax rates, competitor’s price and
product, etc. They give their valuable advice to
government authorities as well.

13. At times, a managerial economist has to prepare

speeches for top management.

Importance of Managerial Economics

 Business Planning and Forecasting

 Analyze Cost and Production Level
 Formulate pricing policies
 Manage Profit
 Capital Management