ME-Unit 1-Intro

Prof.Raman
010822
 Subthemes

• 1.Economic systems

• 2.Principles

• 3.Integration with other Managerial Decision Making Process

• 4.Tools &Analysis of Optimisation

• 5.Role of Govt. Competition vs. Corporations

• 6.Relationship with other Management subjects

 1.Economic Systems

• Types of Systems
• 1.Capitalist economy: In a capitalist system, the products
manufactured are divided among people, not according to
what they want but on the basis of purchasing power.

• This means an individual needs to have the money with him

to buy the goods and services. Therefore, the commodities
will not be manufactured and provided as per market forces.
 Economic Systems

• 2.Socialist economy:. In a socialist society, the government

determines what products are to be manufactured as per the
requirements of the society.

• Therefore, the passions of individual buyers are not given

much attention. The government concludes how products are
to be created and how the product should be disposed of.

• In principle, sharing under socialism is assumed to be based

on what an individual needs and not what they can buy
 Economic Systems

• 3. Mixed systems

-have characteristics of both the command and the market

economic system.

For this purpose, the mixed economic systems are also

known as dual economic systems. However, there is no
sincere method to determine a mixed system.

Sometimes, the word represents a market system beneath

the strict administrative control in certain sections of the
economy.
 2.Principles

• 8 Principles are :
• 1.Opportunity Cost Principle
• 2.Incremental Principle
• 3.Time Perspective Principle
• 4.Discounting Principle
• 5.Marginal Principle
• 6.Equi Marginal Principle
• 7.Scarcity Principle
• 8.Risk&Uncertainty Principle
 2.Principles

• 1.Opportunity Principle: Interest that can be earned if the

funds were to be employed in other ventures. Also called
imputed cost

• 2.Incremental Principle: Cost vs. Revenue

• a)Increase in revenue>Increase in Cost

• b)Reduce cost in one area>Increase of cost in other areas
• c)Increases some resources>decrease in other resources
• d)Decreases cost>Decreases revenue
 2.Principles

• 3.Time perspective Principle

• Decision on costs and revenue in Short run vs Long run
• Short run allows using variable factors of Production in different
amounts
• Long run allows time period to allow using all the factors of
Production in different amounts
• So balance the revenue generation to be struck

• 4.Discounting Principle
• -Is a process of reducing the future values to their present values. A
discount rate is referred by the interest rate which is used in
present value problem
 2.Principles

• 5.Marginal Principle: Every additional Investment amount should

fetch additional amount /output or return
•
• 6.Equi-Marginal Principle: In a case of different activities
involved ,an input is to be allocated in a way that the value added
by the last unit is same in all cases
• Ex: If In activity ‘A’ ,the value of marginal product of labour is
Rs30 while that in activity ‘B’, it is Rs40 .Hence ,it is profitable
• to shift labour from activity ‘A’ to activity ‘B’ thereby expanding
activity ‘B’ and reduce activity ‘A’. When the value of marginal
product is equal in all the 2 activities then the optimum condition
will be achieved
 2.Principles

• 7.Scarcity Principle: When ‘excess demand’ is there ,scarcity

comes in .So Optimum allocation of resources to be done

• 8.Risk&Uncertainity Principle: When uncertainty is reduced

to a number of possible results to alternate courses of action,
it is called risk .So all decisions taken in the atmosphere of
uncertainty
 3.Integration with other Managerial decision-
making Process
• 1.ME & Statistics: Theory of Probability/Forecasting
Techniques
• 2.ME&Maths:Geometry/Trigonometry/Algebra/
Logarithms/Exponentials/Vectors/Matrix/Calculus/Differential
/Integrals
• 3.ME&Accounting:Financial results
• 4.ME&OR:Linear Program models/Inventory models/Game
theory
• 5.ME&Theory of Decision Making: Dealing with multiplicity
of goals and persuasiveness of uncertainty
 4.Tools &Analysis of Optimization

• 1.Numerical analysis
• This involves predicting relevant economic quantities and using them in decision
making and forward planning

• 2.Statistical estimation
• This provides the basis for the empirical testing of theory

• 3.Forecasting
• Trend Projection/Market research/Salesforce composite/Delphi
method/Econometric

• 4.Game theory
• -Is a mathematical framework that can help anticipate the action of others. Used
to understand oligopoly firm behavior
 5.Role of Government Competition vs.
Corporation
• In a Government enterprise:

• Parliament/Civil servants/Boards run the enterprise

• Public ,the owner ,if not happy, can only vote out the ruling party

• Not motivated by profit

• No accountability/No sacking of the manager

•
• Auditing ineffective

• Too much discretion for errors

 6.Relationship with other Management
subjects
• Managerial Economics and Production Management:
• Production is defined as the creation of utility by transforming input into output.

• Operations personnel have four basic responsibilities to fulfill while producing a

firm's products or services: [Raymond R. Mayor, 1975 p. 3]

• Supply of quantities,

• Maintenance of time-bound deliveries,

• Fulfillment of quality requirement, and

• Economizing production operations.

 6.Relationship with other Management
subjects
• Managerial Economics and Production Management:

• For this, the personnel have to deal with a number of inter-

related areas including

• production planning, production control, quality control,

methods analysis, materials handling, plant layout, inventory
control, work management, and wage incentives.

• A knowledge of Economics would help operations personnel

in these areas
 6.Relationship with other Management
subjects
• Managerial Economics and Personnel Management:
• HR Manager has two types of problems:
• (i) an effective utilization of human resources in terms of costs
and productivity and

• (ii) improvement in the terms and conditions of employment

as an adjunct to employee satisfaction.

• Manpower planning, at the micro level, to ensure that

• it has the right number/ right kind of people/at the right
places/at the right time, doing economically most useful work