MANAGERIAL ECONOMICS

INTRODUCTION

The prime function of a management executive in a business organization is decision making and forward planning. Decision making means the process of selecting one action from two are more alternatives courses of action where forward planning means establishing plans for future.

Definition:
According to Mc Nair and Merium, Managerial Economics consists of the use of economic models of thought to analyze

business situations.

Nature of managerial economics:

Managerial economics is, perhaps the youngest of all the social sciences. Since it originates from economics, it has the basic features of economics, such assuming that other things remaining the same. This assumption is made to simplify the complexity of the managerial phenomenon under study in a dynamic business environment.so many things are changing

simultaneously.
Further it is assumed that the firm or buyer acts in a rational manner. The buyer is carried away by the advertisements, brand loyalities, incentives and so on.

Micro Economics

Macro Economics

Interdiseplinery

Nature of managerial economics

Normative Economics

Evaluate each alternative Applied in Nature

Prescriptive Economics

Close to Micro Economics: Managerial Economics is concerned with finding

the solutions for different Managerial Problems of a Particular Firm. Thus, it is more Close to Micro Economics.

Macro Economics: The Macro Economic Conditions of the Economy are also seen as limiting factors for the firm to operate. In other words, the managerial economist has to aware of the limits set by the macro economic conditions

Such as government industrial Policy, inflation, and so on.

Normative Economics: A normative statement usually includes or implies the Words ought or should. They reflects peoples moral attitudes and are expressions of what a team of people ought to do. For example ought to do. For

instance, it Deals with statements such as government of India should open the
economy, Such statements area based on value judgments and express views of what isgood or bad', 'right or wrong.

Prescriptive actions: Prescriptive action is goal oriented. Given a problem and the objectives of the firm, it suggests the course of action from the available alternatives for optimal solution. It does not merely mention the concept, it also explains whether the concept can be applied in a given context or not.

Applied in nature: Models are built to reflect the real life complex business situations and these models are of immense help to managers for decision making. Offers scope to evaluate each alternative: Managerial economics provides an opportunity to evaluate each alternative in terms of its costs and revenues. The managerial economist can decide which is better alternative to maximize the profits the firm.

Interdisciplinary: The contents, tools and techniques of managerial

economics

are

drawn

from

different

subjects

such

as

economics,management,mathematics,statistics,accoutancy,psychology,orga nisational behavior, sociology etc

SCOPE OF MANAGERIAL ECONOMICS

As regards the scope of managerial economics, no uniform pattern has been fallowed by various authors .however , the following topics may be said to generally fall under managerial economics. 1. 2. 3. 4. 5. Demand analysis and forecasting Cost and production analysis Pricing decisions ,policies and practices Profit management Capital management

Managerial decision areas:

1.Production 2.Reduction or control of costs Concepts and techniques of managerial economics 3.Determination of price of a given product or service. 4.Make or buy decisions 5.Inventory decisions. Optimum solutions

6.Capital management
7.Profit planning and management 8.Investment decision.

Demand analysis

and forecasting: Demand analysis helps to identify the and forecasting ,

various factors influencing the demand for a firms product and thus provides guidelines to manipulating demand . Demand analysis managerial economics. therefore , is essential for business planning and occupies a strategic place in

Cost analysis: The factors causing variations in costs must be recognized and allowed for if management is to arrive at cost estimates which are significant for planning purposes . Discovering economic costs and being able to measure them , are necessary steps for more effective profit planning.

Production and supply analysis: production analysis is narrower in scope than cost analysis. production analysis frequently proceeds in physical terms while cost analysis proceeds in monetary terms.

supply analysis deals with various aspects of supply of a commodity.

certain important aspects of supply analysis are supply schedule, curves and function, law of supply, elasticity of supply and factors influencing supply.

Pricing decisions, Policies and practices: Pricing is a very important area of Managerial economics. In fact, price is the genesis of the revenue of a firm

And as such the success of a business firm largely depends on the correctness
of the price decisions taken by it .

Profit management: Business firms are generally organized for the purpose of making profits and in the long run, profits provide the chief measure of success. In this connection, an important point worth considering is the element of uncertainty existing a bout profits because of variations in costs and revenues which in turn, are caused by both internal and external to firm.

Capital management:

Briefly capital management implies planning and classes of business

controlof capital expenditure of various types and to be thoserelating to the firms capital investments.

problems, the most complex and trouble some for business managers are likely