Intro to Managerial Eco

8/13/2019 Intro to Managerial Eco

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Managerial Economics


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What is Management ?

Duties ,functions and role of manager

What is Economics? Definition of Managerial Economics

Relationship to Economic Theory

Relationship to decision science

Business environment and managerial economics Scope of Managerial economics


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Modernbusiness worldis characterized bydynamism ,computerization,

Economies are no longer self-sufficient, inward-looking; added is the pressure of severe

competition due to globalization. Darwins principle applies even today nay more

strongly.

Big corporates follow military strategies involvingsurprise, security and unity of command.

Business units aim at a variety of goals /objectives.

Problem of economizing and choice are mostimportant for firms.


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Decision-making is a must at every stage.

Survival amidst uncertainties is no doubtchallenging. Managerial Economics helps themto plan and implement decisions in such a

complex and dynamic atmosphere. Business Economics or Economics of firms

provides managers with different tools.techniques and principles enabling them make

optimum use of resources within constraints.


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The term Managerial Economics involves 2 terms;

former refers to acts and decisions of manager

later to a subjectmatter.

What is management ?


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What is Economics ?

It is a science of earning and spending wealthas defined by the Father of Economics AdamSmith in his classic work An enquiry into

nature and causes of the Wealth of Nations. In the opinion of Alfred Marshall it was study of

mankind in ordinary business of life.

Lionel Robbins gave us the most acceptedscarcity-oriented definition of Economics. Hesays Economics is a social science whichstudies human behavior as a relationshipbetween unlimited wants and scarce meanswhich have alternative uses.


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Definition of Managerial

Economics

According to Mansfield ,managerial economics isapplied microeconomics.

Whether profit or non-profit making organisations

and whatever may be their goals , they have all toface constraints which may be internal & /orexternal.

THE BASIC DECISION-MAKING PROCESS ISSAME FOR ALL FIRMS.

All managerial decision problems are solved withthe help of tools ,concepts and principles in.a)Economic theory; b) Managerial economics c)Mathematical economics.

Role of economic theory----

In any business, the businessman has to decidewhat , how ,when ,how much , whom , where etc.


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There arises question of choice at every stage of production.

eg. Choice regarding selection of project, location of plant

,inputs , funds etc.

The manager has to study environment atMicro as well as Macro levels.

Micro economics here the subject-matter

is individual consumer ,firm market , industryetc. Theories under micro-economics are:Theory of value, theory of distribution,theory of economic welfare etc.

Macro-economic environment is generaleco-pol-social condition of the larger systemwhich may be at domestic & /or internationallevel.


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Business environment and

managerial economics--

Business environment refers to all those forceswhich influence functioning of business.

Two types of factors are relevant here-1)Internal

factors :these are controllable; either altered ormodified. 2) External factors- these are beyondcontrol

Example of internal factors: corporate philosophy,physical assets , management structure, humanresources , R &D , FINANCE , technology etc.

Example of external factors :Customers , suppliers, competitors , natural factors ,demographicchanges , political situation , eco-social condition ,government policies etc.


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Scope of managerial economics-

Studies 8 different areas

Demand

Cost Analysis

Pricing policies Profit management

Capital Management

Inventory management Marketing and advertising

Whether it is setting of new machinery/plant

or recruiting /laying off labor-


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Basic Concepts

Rationality

Positive and Normative Economics

Alternative economic systems

Value and price

Utility and demand Marginalism / Marginal analysis


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RationalityMany casual observers of the subject argue thatthe relevance of the subject hinges on the selfish

nature of the humankind since it deals only withsatisfying the material desires. But economist

recognize that people act for variety of reasons,some selfish some humanitarian. The point is thatthe action of whichever type will be influenced bythe cost and benefit. As an activity becomes morecostly it is less likely to be chosen.

Person is likely to try to save the life of the boyin three feet swimming pool rather than the rapidcurrent approaching Nigara Falls.


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Alternative economic systems

What to produce?

How to produce?

For whom to produce?

Market economy

Command economy

Mixed economy

Documents

Intro to Managerial Eco