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Managerial Economics and Its Relevance - Unit 1
Managerial Economics and Its Relevance - Unit 1
• It refers to the application of economic theory and decision science tools to find
the optimal solution to managerial decision problems.
• Managerial economics :
• applies these tools and concepts to the management of business
• Concerned with allocation of resources available to a firm among its activities.
• It is the application of economics in decision making., always goal oriented.
Economics v/s Managerial Economics
I. What to produce?
II. How to produce?
III. For whom to produce?
Scope of Managerial Economics
• Use of analytical tools and techniques of Economics that are useful for business
decision making
• To move towards Economic Choice- the Rationale choice towards optimization
Economic Theory
Business Business Optimal
Decision Economics Business
Problems Decision
Sciences: tools
and Techniques
Significance in decision making and fundamental
concepts
• 1. Environmental studies:
• An analysis and forecast of external factors constituting general business
conditions are of great significance since every business firm is affected by
them.
• Certain important relevant questions in this connection are as follows;
• What is the outlook for the national economy?
• what are the most important economic trend?
• What phase of the business cycle lies immediately ahead?
• What about population shift and resultant ups and downs in regional
purchasing power?
Role of managerial economist
• Sales forecasting
• Industrial market research
• Economic analysis of competing companies
• Pricing problem of industry
• Capital projects
• Production programmes
• Security or investment analysis
• Advice on trade and public relations
• Advice on foreign exchange
• Economic analysis of agriculture
• Analysis of underdeveloped economies
• Environmental forecasting
4.Economic intelligence
• Positive Economics explains the economic phenomenon as : what is, what was
and what will be.
• Normative Economics prescribes what is ought to be.