Managerial Economicslecture no.2

Prof. Mazahir saifee

What is managerial economics

• It is another branch in the science of economics. Sometimes it is interchangeably used with business economics. Managerial economic is concerned with decision making at the level of firm. It has been described as an economics applied to decision making. It is viewed as a special branch of economics bridging the gap between pure economic theory and managerial practices.

Cont……..

• It is defined as application of economic theory and methodology to decision making process by the management of the business firms. In it economic theories and concepts are used to solve practical business problem. It lies on the borderline of economic and management. It helps in decision making under uncertainty and improves effectiveness of the organization.

• The basic purpose of managerial economic is to show how economic analysis can be used in formulating business plans.

Managerial Economics = Management + Economics

• Management deals with principles which helps in decision making under uncertainty and improves effectiveness of the organization. On the other hand economics provide a set of preposition for optimum allocation of scarce resources to achieve a desired result.

• ME deals with the integration of economic theory with business practices for the purpose of facilitating decision making and forward planning by management.

• In other words it is concerned with using of logic of economics, mathematics, and statistics to provide effective ways of thinking about business decision problems.

Definitions

• “Managerial economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making”.

• According to Spencer and Seigelman—“it is defined as the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management”.

Features & Characteristics of Managerial Economics

• Managerial Economics is micro-economic in character.• Macro-economics is also useful to Managerial Economics.• Managerial Economics is pragmatic. It is concerned with

those analytical tools which are useful in improving decision-making.

• Managerial Economics largely uses that body of economic concepts and principles.

Managerial Economics Is a Tool for Improving Management Decision Making

WHY DO MANGERS NEED TO KNOW ECONOMICS?

Functions of Managerial Economist

• Sales Forecasting• Industrial market research• Economic analysis of competing companies.• Pricing problems of industry.• Capital projects• Production programmes.• Investment analysis

Functions continue…..

• Advice on trade and public relations.• Advice on primary commodities.• Advice on foreign exchange.• Economic analysis of agriculture.• Analysis of underdeveloped economies.• Environmental forecasting.

Subject matter and scope of managerial economics

• Resource allocation• Inventory and queuing problem• Pricing problems• Investment problems

Managerial economics and other disciplines

• Microeconomic theory• Macroeconomic theory• Operation research• Theory of decision making• Statistics• Management Theory and accounting

Value Maximization Isa Complex Process

Link between traditional & Managerial Economics

Decision Problem

TraditionalEconomics Managerial Economics

Decision Sciences( Tools and Techniques

of Analysis )

Optimal Solution to Business Problems

To be continue…• These three choice problems have become the three central problems of an economy as

shown in following fig.

Unlimited Wants Limited Resources

SCARCITY

What to produce ?How to produce ? For Whom to produce ?