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Introduction
Introduction
M A N A G ER I A L
ECONOMICS
Managerial Economics
• Branch of Economics.
• ‘Managerial Economics is the study of Economic
Theories, Principles and Concepts which is
used in Managerial Decision Making.’
• ‘Managerial Economics is the Application of
various Theories, Concepts and Principles of
Economics in the Business Decisions.’
• It also Includes ‘The Application of Mathematical
and Statistical tools in Management decisions.’
Managerial Economics
Application of Mathematical
And Statistical tools
Economic
Applicatio
Theories, n Managerial
Decision
Applicatio
Principles n Making.
and
Concepts.
Managerial Economics
Managerial Decisions
Choice of product
Choice of production method
Choice of price, Etc…
Application of Application of
Economic concepts, Analytical tools
Theories and such as,
Principles in Mathematical and
decision Making Statistical tools
Managerial Economics
‘Application of Economic
Concepts, Theories and
Analytical tools to find
solutions for managerial
problems.
Managerial Economics
• Economics.
– Theories
– Principles
– Concepts
• Decision Making.
– Selection of best alternative out of various
possible alternatives.
Risk & Uncertainty
Economics
Economics: ‘A Queen of Social Sciences’
Economics ‘OIKOS’ ‘NOMOS’ (Greek Words)
‘OIKOS’ ‘HOUSE’
‘NOMOS’ ‘MANAGEMENT’
–Theory of Individual/Market
Demand.
–Theory of Production and Cost.
Economics
1.Comprehensive and wider Managerial Economics
scope 1. Narrow and limited scope
2.It has both Micro and Macro in 2.It is essentially Micro in nature
nature and Macro in analysis
3.It is both Normative and 3.It is mainly a Normative science
positive science 4.It is concerned with the
4.It is concerned with the application of theories and
formulation of theories and principles of economics
principles 5.It discusses Individual problems
5. It discusses general
problems
Nature of Managerial Economics
➢ Science as well as Art of decision making.
➢ It is essentially Micro in nature but Macro in
analysis.
➢ It is mainly a Normative science but positive in
analysis.
➢ It is concerned with the application of theories and
principles of economics.
➢ It discusses Individual problems.
➢ It is dynamic in nature not a Static.
➢ It discuss the economic behavior of a firm.
➢ It concentrates on optimum utilization of
resources.
Scope of Managerial Economics
➢Objectives of a Firm.
➢Demand Analysis and Forecasting.
➢Production and cost analysis.
➢Pricing decisions.
➢Profit management.
➢Capital management.
➢Market structure.
➢Inflation and economic conditions.
Managerial economics and Decision
Making
• Decision making:
– Decision making on internal affairs.
– Decision making on external affairs.
Internal affairs talk on internal environment which
consists of internal factors such as, Production,
Financial, Marketing and Human resource related
decisions.
External Affairs talk on external environment
which consists of external factors such as, PEST
related decisions.
Decision Making
• Uncertainty:
– Nothing can be expectable because
of the constant changes in the
environment both internally as well as
externally.
• Risk:
– It is the situation which comes under
uncertainty.
Decision???????????????
How to take decision????????????
By using….
Economic Models
Economic Models
Economic model
is the structural and scientific method of
constructing or developing Solutions by
using basic economic principles,
concepts, theories and Quantitative
techniques such as mathematical and
statistical tools.
Conclusion for
decisions.
ct
ru
t els Evaluating results
s
n od
o
c M
o
t ic Testing of
s
ep
Hypothesis
m
St ono
Ec Analysis of data using Basic
Principles of economics and
Quantitative Techniques.
Data collection
Formulation of
hypothesis
Defining the
problem
Basic Principles of Managerial
Economics
Opportunity cost principle.
Marginalism principle.
Equi-marginalism principle.
Incremental principle.
Time perspective principle.
Discounting principle.
Opportunity Cost Principle
Choice involves sacrifice.
The cost involved with the sacrifice
It is the cost of an next best opportunity which
is lost will be called as Opportunity cost.
Ex: 100 Rs can be used for purchasing book or
eating in pizza corner or purchasing of
stationeries.
Now the cost of purchasing book is also include
the cost of ‘Eating pizza.’
Opportunity Cost in Management
C1 Y
X
O D D1 B
Marginalism Principle
Marginal cost
and
Marginal profit/benefit
Marginal cost is the cost which incurred to
produce the next or one
more unit.
Marginal Revenue is the benefit which gets by
producing one more or next unit.
Cost will be less and benefit will be more.
Marginalism Principle
• Marginal cost (MC)= (TC)n - (TC)n-1
Decision Rule:
MR > MC…..MR=MC…..MR<MC
Equi-marginalism Principle
• Allocation of scarce resources on different
alternative uses should be equally distributed.
FV = PV*(1+r) t And
PV = FV/ (1+r) t
• Variables
• Functions
• Schedules
• Graphs
• Derivatives
• Differentiation
• Integration
etc…