ECONOMICS IS SCIENCE OF CHOICE.

ECONOMIC AGENTS HAS TO MAKE THE CHOICE :

(A) FIRM - PROFIT MAXIMISATION

(B) HOUSEHOLD - SATISFACTION

MAXIMISATION

PROBLEM OF CHOICE OR DECISION MAKING

ARISES DUE TO SCARCITY

SCARCITY

OUR WANTS ARE UNLIMITED

RESOURCES ARE LIMITED

CHOICE

HUMAN WANTS ARE UNLIMITED BUT THESE WANTS DIFFER IN INTENSITY.

RESOURCES ARE LIMITED, BUT LIMITED RESOURCES ARE CAPABLE OF BEING BUT ALTERNATIVE USES.

ECONOMIC UNITS

HOUSEHOLD FIRM GOVT.

HOUSEHOLD :

LAND - RENT

LABOUR - WAGES

CAPITAL - INTEREST

ENTERPRENEURSHIP - PROFIT

FIRMS : OUTPUT

MAX OUTPUT MINIMUM INPUT

MAX PROFIT = R – C

FACTORINCOME

FACTOR INPUT

COST

ACCOUNTS’ ECONOMISTS’ COST COST

EXPLICIT IMPLICIT + EXPLICiT COST COST COST

OPPORTUNITY COSTECONOMY

HOUSEHOLD + FIRM + GOVT. - ECONOMYSYSTEM OF PRODUCTION, DISTRIBUTION & CONSUMPTION OF GOODS & SERVICES

CLOSED OPEN

UNLIMITED LIMITED CHOICE RESOURCES

WHAT HOW FOR WHOM TO TO TO PRODUCE

PRODUCE PRODUCE

THREE CHOICE PROBLEM OF AN ECONOMY

SCARCITY

DEFINATION :

Mc Nair & Merian :

THE USE OF ECONOMIC MODELS OF THOUGHT TO ANALYSE BUSINESS SITUATION.

Spencer & Sigelmen :

ME IS THE INTEGRATION OF ECONOMIC THEORY WITH BUSINESS PRACTICE FOR THE PURPOSE OF FACILITATING DECISION MAKING & FORWARD PLANNING BY MANAGEMENT.

D.S. Watson :

ME-PRICE THEORY IN THE SERVICE OF BUSINESS EXECUTIVES.

Brigham & Pappas :

ME-THE APPLICATION OF ECONOMIC THEORY & METHODOLOGY TO BUSINESS ADMINISTRATION PRACTICE.

Huges :

ME – A FUNDAMENTAL ACADEMIC SUBJECT WHICH SEEKS TO UNDERSTAND AND TO ANALYSE THE PROBLEMS OF BUSINESS DECISION MAKING.

FEATURES :

ME IS CONCERNED WITH DECISION MAKING i.e.

IT DEALS WITH IDENTIFICATION OF ECONOMIC

CHOICE AND ALLOCATION OF SCARCE

RESOURCES.

IT IS GOAL – ORIENTED & PRESCRIPTIVE. IT

DEALS WITH HOW DECISION SHOULD BE MADE

BY BUSINESS FIRMS TO ACHIEVE

ORGANISATIONAL GOAL.

IT IS CONCERNED WITH THOSE ANALYTICAL

TOOLS WHICH ARE USEFUL IN IMPROVING

DECISION MAKING.

ME IS BOTH CONCEPTUAL & METRICAL.

ME PROVIDES THE LINK BETWEEN TRADITIONAL

ECONOMICS AND THE DECISION–SCIENCES FOR

MANAGERIAL DECISION MAKING.

DIFFERENCE B/W ME & ECONOMICS

ME INVOLVES APPLICATIONS OF ECONOMIC PRINCIPLES TO THE PROBLEMS OF THE FIRM. ECONOMICS DEALS WITH THE BODY OF PRINCIPLES ITSELF.

ME IS MICRO-ECONOMIC IN CHARACTER. ECONOMICS IS BOTH MICRO & MACRO IN NATURE.

ME DEALS WITH THE FIRM AND HAS NOTHING TO DO WITH AN INDIVIDUA’L ECONOMIC PROBLEMS. BUT MICRO ECONOMICS AS A BRANCH OF ECONOMICS DEALS WITH BOTH ECONOMICS OF THE INDIVIDUAL AND THE FIRM.

SCOPE OF ECONOMICS IS WIDER THAN ME AS MICRO ECONOMICS DEALS WITH

DISTRIBUTION THEORY i.e. PROFIT, RENT, WAGES BUT ME DEALS WITH ONLY PROFIT.

ECONOMIC THEORY HYPOTHESISED ECONOMIC RELATIONSHIP BUT ME ADOPTS, MODIFIES AND REFORMULATES ECONOMIC MODELS TO SUIT THE SPECIFIC CONDITIONS.

ECONOMIC THEORY MAKES CERTAIN ASSUMPTION WHEREAS ME INTRODUCES CERTAIN FEEDBACKS SUCH AS OBJECTIVES OF THE FIRM, MULTI PRODUCT NATURE OF MANUFACTURE, BEHAVIOURAL CONSTRAINS ETC.

ME IS CONCERNED WITH DECISION MAKING REGARDING :

LEAST COST INPUT MIX.

PRODUCT MIX.

PRODUCTION TECHNIQUE.

LEVEL OF OUTPUT.

PRICE OF THE PRODUCT.

INVESTMENT DECISION.

ADVERTISING OUTLAY.

DISTRIBUTION BETWEEN DIFFERENT MEDIA.

ME INVOLVES THE APPLICATION OF

ECONOMIC CONCEPTS.

TOOLS

TECHNIQUES

PRINCIPLES & THEORIES OF BUSINESS FIRMS.

* EVALUATE THE BEST FEASIBLE ALTERNATIVES AND CHOOSE THE BEST ONE.

* CONCERNED WITH ANALYTICAL TOOL FOR DECISION MAKING.

* FORWARD PLANNING, GOES HAND IN HAND IN DECISION MAKING.

SCOPE OF MANAGERIAL ECONOMICS

1DEMAND

ANALYSIS &FORECASTING

(DEMANDDECISIONS)

2COST &

PRODUCTION ANALYSIS

(INPUT-OUTPUT DECISIONS)

PROFIT ANALYSIS(PROFIT

MAXIMISATIONAND ALTERNATIVE

THEORIES)

5RISKS &

UNCERTAINITYANALYSIS

(ECONOMIC FORECASTING & PLANNING)

4INVESTMENT

ANALYSIS(PROJECT

APPRAISAL & INVESTMENT DECISIONS)

3MARKET

STRUCTURE &PRICING POLICIES

(PRICE-OUTPUTDECISIONS)

MANAGERIAL ECONOMICS & OTHER DISCIPLINES

MANAGERIAL ECONOMICS & ECONOMICS :

MICRO ECONOMICS : PRICE THEORIES DEMAND CONCEPT MARKET STRUCTURE

MACRO ECONOMICS : NATIONAL INCOME ACCOUNTING

MANAGERIAL ECONOMICS & STATISTICS &

MATHEMATICS :

STATISTICAL TOOLS PROBABILITY CALCULUS ALGEBRA LOGARITHMS

MANAGERIAL ECONOMICS & OPERATION RESEARCH :

THEORY OF GAMES ASSIGNMENT MODELS LINEAR PROGRAMMING WAITING LINE PROBLEMS INVENTORY MODELS

MANAGERIAL ECONOMICS & ACCOUNTING

PRINCIPLES :

PROFIT & LOSS STATEMENTS. BALANCE SHEET OR POSITION STATEMENT.

MANAGERIAL DECISION CAN BE CLASSIFIED INTO VARIOUS CATEGORIES :

1. FINANCIAL DECISIONS :

COSTING, BUDGETING, ACCOUNTING, AUDITING, TAX PLANNING,

DIVIDEND DISTRIBUTION.

2. PRODUCTION DECISIONS :

PRODUCT QUANTITY, INVENTORY CONTROL, CHOICE OF

TECHNOLOGY, PLANT LOCATION & LAYOUT,

PRODUCTION SCHEDULE.

3. PERSONNEL DECISIONS :

RECRUITMENT, SELECTION, TRAINING, DEVELOPMENT, PLACEMENT,

PROMOTION, TRANSFER, RETIREMENT.

4. MARKETING DECISION :

SALES VOL. SALES FORCE, SALES PROMOTION, PRICE DISCOUNT, MR,

AFTER SALES SERVICE, NEW PRODUCT

POSITIONING, ADVERTISING.

5. MISC. DECISIONS :

INFORMATION SYSTEM, DATA PROCESSING, PUBLIC RELATIONS.

ROLE OF MANAGERIAL ECONOMICS IN

BUSINESS DECISION-MAKING

ECONOMIC THEORY &

METHODOLOGY

DECISIONPROBLEMS

IN BUSINESS

MANAGERIAL ECONOMICS(Application of Economics Theory and Methodology of Solving Business Problems)

OPTIMAL SOLUTIONS TOBUSINESS PROBLEMS

PERFORMING SENSITIVITY ANALYSIS

CHOOSING BEST ALTERNATIVE

ASSESSING CONSEQUENCES OF VARIOUS ALTERNATIVES

EXPLORING AVAILABLE ALTERNATIVES

DETERMINING OBJECTIVES

DEFINING BUSINESS PROBLEM

STEPS IN DECISION MAKING