MANAGERIAL ECONOMICS

WELCOME
TO
THE CLASS
OF
MANAGERIAL ECONOMICS
INTRODUCTION TO MANAGRIAL MAN
ECONOMICS
BY
DARA RAJENDRABABU
TOPICS TO DISCUSS
• Introduction To Managerial economics
• Definitions of Managerial Economics

• Types of Managerial economics

• Principles of Managerial economics

• Nature and scope of Managerial economics

LEARNING OUTCOMES
1 • Understanding about To Managerial
2 economics
• Definitions of Managerial Economics

• Understanding about Types of

3 Managerial economics
• Principles of Managerial economics
4 • Nature and scope of Managerial
economics
 INTRODCUTION
• Managerial Economics is subject gained popularity in USA after the
publication of the book Managerial Economics” by Joel Dean in 1951.
• Managerial Economics refers to the firm’s decision making process. It
could be also interpreted as “Economics of Management” or “Economics
of Management”. Managerial Economics is also called as “Industrial
Economics” or “Business Economics”.
• As Joel Dean observes managerial economics shows how economic
analysis can be used in formulating polices.
• When you apply important aspects of economic principles, theories, tools,
and approaches to solve practical problems in your business, you’ve
applied managerial economics.
 INTRODCUTION
• Managerial Economics can be defined as amalgamation of economic
theory with business practices so as to ease decision-making and
future planning by management. Managerial Economics assists the
managers of a firm in a rational solution of obstacles faced in the firm’s
activities. It makes use of economic theory and concepts. It helps in
formulating logical managerial decisions.
• The key of Managerial Economics is the micro-economic theory of the
firm. It lessens the gap between economics in theory and economics in
practice. Managerial Economics is a science dealing with effective use of
scarce resources. It guides the managers in taking decisions relating to the
firm’s customers, competitors, suppliers as well as relating to the internal
functioning of a firm. It makes use of statistical and analytical tools to
assess economic theories in solving practical business problems.
 MEANING & DEFINITION
• In the words of E. F. Brigham and J. L. Pappas Managerial Economics is
“the applications of economics theory and methodology to business
administration practice”.
• M. H. Spencer and Louis Siegel man explain the “Managerial Economics
is the integration of economic theory with business practice for the purpose
of facilitating decision making and forward planning by management”.
• Managerial Economics, therefore, focuses on those tools and techniques,
which are useful in decision-making.
 TYPES OF MANAGERIAL
ECONOMICS
• Depending on the purpose for which you want to use it in your organization,
managerial economics could come in many ways. If to use it to solve the problem
of customer service delivery is your concern, managerial economics can be
deplored. How about employee motivation to improve output and delivery?
• In any case, it will go a long way to add value to the way you do business and
would lead to an increase in your ROI.
• Below are the different types of managerial economics that you can use for your
business, whether it’s a profit-making firm or a non-profit one.
• Nominative
• Liberal
• Radical
 NORMATIVE MANAGERIAL
ECONOMICS
• This aspect of management is unique and takes into consideration the idea
that a practical solution to managerial problems is given. It places
emphasis on the fact that the decision making of an organization be viewed
from the point of true happenings, rather than be based on theories alone.
• When using this type of managerial economics, you don’t treat as
administrative issues through only analysis. You do so using practical, real-
life situations.
• Such important issues as forecasting, cost management, recruitment,
product design and promotion are given a practical approach that enhances
decision making and the general administrative responsibilities of an
organization.
 NORMATIVE MANAGERIAL
ECONOMICS
• Here’s a breakdown of how each of the types of nominative managerial
economics affects forecasting, cost management, recruitment, product
design, and promotion.
• Because forecasting helps to see ahead then nature of business operations
and decisions, it’s easy to solve any problem that arises when a practical
approach is used.
• With this mind, your organization would be able to cut cost when problems
are detected on time, because they’d be quickly attended to before they grow
bigger and harder.
• When an organization recruits the best in a particular field, jobs will be done
effectively. As a result, you’d not only produce the best product, promoting it
will be practical and result-driven because there’s a standard approach to its
production.
 LIBERAL MANAGERIAL
ECONOMICS
• In this context, your organization operates based on market forces and
trends. People, your customers have the freedom to buy what they want
and need in the market at any given point in time.
• They make their own choices and buying decisions by going for whatever
they want. So it befits your organization to study customer behavior
through adequate data analysis that helps you determine how you respond
to your customers’ needs.
• This is where your organization’s management comes in. You put in place
a good plan to ensure customer satisfaction.
 RADICAL MANAGERIAL
ECONOMICS
• In order to beat competitions by meeting customer satisfaction, there is a
need to ensure that a practical and goal-driven approach is enforced. This
would mean the management going out of their way to plan and
strategize the best method of meeting set goals.
• And what this means is that, to achieve this, management would have put
aside the need for profit maximization as they focus on customer
satisfaction. This makes sense as satisfying the customers means
generating leads. And this set of people will eventually become returning
customers from which your organization can continue to generate profit.
 PRINCIPLES OF MANAGERIAL
ECONOMICS
• Showing how the principles of managerial economics are deplored to solve
real-life problems is the best way to understand the relationship between
management and economics.
• We’re going to look at the three core principles. Not only that, we’ll
also explain the sub-ideas and functions under each of them.
• The three major principles we’ll look at are:
• The principles of decision making
• The principles of business communication
• The principles of economic functions
PRINCIPLES OF MANAGERIAL
ECONOMICS
 THE PRINCIPLES OF DECISION
MAKING
• This involves the way people go about their businesses and the different
decision making processes that help them make informed decisions about
certain products and services.
• The Choices Made: In order to meet up with the standard set by an
organization, you have to decide if doing business with them is favorable
to the both of you. In this way, there’ll be series of options to choose from.
Then if the people like they can freely choose any aspect of the business
that suits them.
 THE PRINCIPLES OF DECISION
MAKING
• Opportunity Cost: This is part of the decision making that influences
people’s choices. When there is a lot of options to choose from, people
tend to go with the most convincing.
• The Gains: Before you can convince people to consider engaging in your
business, you’d do more than just putting the products right in front of
them. That may have some effect. But the real benefit is in letting them see
what’s really in it for them when they get involved.
• Attraction Point: When people get positive incentives with an offer, they
jump at it.
 THE PRINCIPLES OF BUSINESS
COMMUNICATION
• Communication is key to the success of every business. This is why it’s
an important principle that affects the success or otherwise of any business.
• Win-win Situation
• Participation in a business transaction gives mutual benefits. As an
exchange culture, both parties have something to gain. When businesses
and organizations create products and offer services, the customer in turn
needs those products or services.
• Economic Relationship
• An atmosphere where relationships can be formed and people can interact
for mutual gains is essential for growth. A market is often where the
producers and consumers meet for a successful business transaction.
 THE PRINCIPLES OF BUSINESS
COMMUNICATION
• Government Intervention
• Whenever there’s an unfavorable policy for businesses, the government
often sets in by communicating with stakeholders to jointly work out the
best solution to the problem.
 THE PRINCIPLES OF ECONOMIC
FUNCTIONS
• No doubt about it, the economic situation of a country has an effect on the
business activity of any organization there.
• Improved Living Standard: Business activities which involve selling and
buying and offering of services often boost the economy of a country. When
businesses meet consumer needs and there is a thriving atmosphere for trading
activities, the economy booms.
• Curbs Inflation: When there’s too much money in circulation, inflation sets in.
People’s purchasing capacity increases and the prices of goods would increase
astronomically. And this would happen when those producing aren’t able to meet
consumers’ demand.
• Economic Stability Efforts: When there is inflation in the country, the
government intensifies effort to roll out policies that would stabilize the economy.
This is key as an aspect of managerial economics.
NATURE OF MANAGERIAL
ECONOMICS
 NATURE OF MANAGERIAL
ECONOMICS
• The following forms of nature show us how it affects people with regard to decision
making.
• Scientific
• As an Art
• Administrative
• Resource Control
• Micro-economic
• Macroeconomic
• Dynamic
• Multidisciplinary
• Prescriptive
• Management-driven
Scientific
• Managerial economics is scientific in approach because it handles real-life
situations in a well-calculated manner. Just like science, it goes through the
essential processes of methodical observations, continuous experimentations,
and application. In this way, policies formulated that carefully go through these
steps often render the final decision solid and really applicable.
As an Art
• As an art, managerial economics combines proven knowledge and strategies by
analyzing the theoretical ideas that form decisions. This is deplored in a step by
step way to achieve organizational objectives.
Administrative
• In order to come up with ideas that help in decision making for the organization,
managerial economics helps in making decisions that are right for the business
environment and fitting for administrative responsibilities.
Resource Control
• It is often deplored when ensuring proper management of available resources. With
several options to choose from the number of resources provided such as
information, human, capital and technological, for effective management, the
manager looks at the most fitting ones.
Micro-economic
• In order to solve problems relating to the organization’s objectives, product
demand, price determination, and supply of goods produced, the manager ensures
that everything is in place. He analyses the internal environment of the organization
to see the best practices for success.
Macroeconomic
• The external environment of any business often affects its decision-making
process. Important decisions bothering on government policies, price
determination, state of the economy, exchange rate and other market conditions
usually influence the steps taken by the manager.
Dynamic
• In general, management is a dynamic affair. With differences in human
preferences, there is usually a constant change in decisions made.
Multidisciplinary
• It is the combination of several ideas from different disciplines such as
mathematics, statistics, finance, human resource, marketing etc. that forms the
decision making process.
Prescriptive
• The management of an organization deals in achieving a certain goal. So all the
ideas formulated and steps taken determine the level of success recorded.
Management-driven
• What this means is that it is largely a pragmatic approach. It makes use of real
time situations.
• Now, the next thing is to briefly check out the scope of managerial economics.
 SCOPE OF MANAGERIAL
ECONOMICS
The scope is as follows
• Analysis of Demand and Forecasting
• Analysis of Cost and Production
• Pricing
• Profit Management
• Capital Investment
Analysis of Demand and Forecasting
• This means that producers often minimize their production output based on
market demand. With this, it becomes necessary for an organization to
have a production schedule before going ahead to roll out products.
• Demand analysis assists the organization in maintaining market share with
its competition and this would result in an increase in profit.
Analysis of Cost and Production
• One of the key functions of a manager is to look into the cost figures of
output. He also finds out costs of production and sees if it meets up with
the total expected income. In ensuring that the necessary information is
identified, he works on the most fitting pricing policy based on the cost of
production and market value.
Pricing
• As a scope of managerial economics, pricing determines demand and how
consumers react to products. This comes after doing a thorough market
analysis.
Profit Management
• As the goal of your organization is to maximize profit, this is part of the
scope of management in which the manager finds a balance between cost
estimates and profit generation. When a manager is able to reduce
uncertainty, the firm makes more profit.
Capital Investment
• Managing capital is a very important function of management that’s key to
success. The investment could come in different forms like equipment,
technology, skills, and information. This would affect project selection,
cost of capital and the Return on Investment.