This document provides an overview of key concepts in managerial economics. It discusses the relationship between managerial economics and other disciplines like economics, operational research, accountancy, mathematics, statistics, psychology, and management theory. Microeconomics studies individual actors in markets while macroeconomics looks at whole economies. The document outlines differences between micro and macroeconomics. Finally, it explores important economic concepts used in managerial decision making, including incremental concepts, time perspective, discounting, opportunity costs, equimarginal principle, contribution concept, and negotiation principle.

1. MANAGERIAL ECONOMICS
UNIT- 1 Lec- 2
• Relationship of Managerial Economics with Other
Disciplines
• Distinction between Micro and Macroeconomics
• Basic economic concepts in decision making
By- Pooja Kadiyan

2. Relationship of Managerial
Economics with Other
Disciplines
• The nature and scope of managerial
economics can also be understood well by
studying its relationship with other disciplines.
Managerial economics draws heavily from the
following disciplines:

3. 1.Economics and Econometrics
• As stated earlier that managerial economics is an
application of economic theory into business practices /
management.
• Managerial economics uses both micro and macro
economics-their concepts, theories, tools and
techniques. In managerial economics, we also use
various types of models such as schematic models
(diagrams) analog models (flow charts) and
mathematical models etc.
• The roots of most of these models lie in economic logic.
Economics also tells us the art of constructing models.
Empirically estimated functions, which are being used in
managerial economics are basically econometric
estimates.

4. 2.Operational Research (OR)
• OR is used for solving the problems of allocation,
transportation, inventory building, waiting line etc..
• Linear programming and goal programming models
are very useful for managerial decisions. These are
widely used OR techniques.
• linear programming was used extensively to deal
with transportation, scheduling, and allocation of
resources subject to certain restrictions such as
costs and availability.
• It combines economics, mathematics and statistics
to build models for solving specific problems and to
find a quantitative solution there by

5. 3. Accountancy
• It provides business data support for decision-
making. The data on costs, revenues,
inventories, receivables and profits is provided
by the accountancy.
• Cost accounting, ratio analysis, break-even
analysis are the subject matters of
accountancy and they are of great help to
managers in decision-making.

6. 4.Mathematics and Statistics
• Mathematical tools are widely used in model
building for exploring the relationship between
related economic variables. Most of the decision
models are constructed in terms of mathematical
symbols.
• Geometry, trigonometry and algebra are different
branches of mathematics and they provide various
tools & concepts such as logarithms, exponentials,
vectors, determinants, matrix algebra, and
calculus, differentials and integral.

7. Cont...
• Similarly, statistical tools are a great aid in
business decision-making. Statistical tools such as
theory of probability, forecasting techniques,
index numbers and regression analysis are used
in predicting the future course of economic
events and probable outcome of business
decisions.
• Statistical techniques are used in collecting,
processing & analyzing business data, and in
testing the validity of economic laws.

8. 5. Psychology and Organisation
Behaviour (OB)
• In fact, managerial economics analyse the individual
behaviour of a buyer and seller [microeconomic units].
• Psychology is helpful in understanding the behavioural
aspects like attitude and motivation of individual
decision making unit.
• Psychological Economics-a new discipline of recent
origin analyses the buyer’s behaviour useful for
marketing management.
• Behavioural models of firms have also been developed
based on organization psychology and micro economics
to explain the economic behaviour of a firm.

9. 6.Management Theory
• Management theories bring out the behaviour of
the firm in its efforts to achieve some
predetermined objectives. With change in
environment and circumstances, both the
objectives of firm and managerial behaviour
change.
• Therefore sufficient knowledge of management
theory is essential to the decision-makers.
• The basic knowledge of the principles of personnel,
marketing, financial and production management
is required for accomplishing the task.

10. DISTINCTION
BETWEEN
Microeconomics and
Macroeconomics

11. RELATIONSHIP
• Microeconomics studies the actions of
individual consumers and firms;
• managerial economics is an applied specialty
of this branch.
• Macroeconomics deals with the performance,
structure, and behaviour of an economy as a
whole. Managerial economics applies
microeconomic theories and techniques to
management decisions.

12. Difference between Micro and Macroeconomics

13. cont...

14. •ECONOMIC CONCEPTS
USED IN MANAGERIAL
ECONOMICS

15. Economic Concepts
Managerial economics uses a wide variety of economic
concepts, tools, and techniques in the decision-making
process. These concepts can be placed in three broad
categories:
1.The theory of the firm, which describes how businesses
make a variety of decisions
2.The theory of consumer behaviour, which describes
decision making by consumers
3.The theory of market structure and pricing, which
describes the structure and characteristics of different
market forms under which business firms operate.

16. The concepts are:
1. The Incremental Concept
2. The Concept of Time Perspective
3. The Concept of Discounting Principle
4. The Opportunity Cost Concept
5. The Concept of Equimarginal Principle
6. The Contribution Concept
7. The Concept of Negotiation Principle.

17. 1. The Incremental Concept
• “It involves estimating the impact of
decision alternatives on costs and
revenues, stressing the changes in total
cost and total revenue that result from
changes in prices, products, procedures,
investments or whatever may be at stake
in the decision”.

18. Two basic concepts -
incremental cost and incremental
revenue
The former refers to the change in total
cost resulting from a decision.
Likewise, the latter may be defined as
the change in total revenue resulting
from a decision.

19. 2. The Concept of Time Perspective:
• In economics, we often draw a distinction
between the short-run and the long-run.
• This distinction is not based on any calendar
period, say, a month, a quarter or a year. It is
based in the speed with which decisions can
be made and factors of production varied.

20. 3.The Concept of Discounting Principle:
• There is a famous proverb that a bird in the
hand is worth two in the bush’.
• If a decision affects both costs and revenues at
future dates, it is absolutely essential to
discount those cost and revenue so as to make
them comparable to some present value before
a valid comparison of alternatives is possible.

21. 4.The Opportunity Cost Concept:
• The opportunity cost of a decision means
sacrificing alternatives. Opportunity cost
measures the value of the most valuable of
the options that we have to forego in choosing
from a set of alternative options.

22. 5. The Concept of Equimarginal Principle
• The law implies that the marginal product will
decline as more of one resource is combined
with fixed amounts of another. This
proposition, in fact, holds good over a wide
range of economic activity.
• For example, successive applications of
fertilizer tend to raise cereal yields per acre, but
increasing quantities of fertilizer are
successively required to give equal output
increases.

23. 6.The Contribution Concept
• The contribution concept is often used in
product- mix decisions, also in pricing
decisions. It is also applicable in make or buy
decisions. Finally, in a discussion on capital
budgeting, it is usually discovered that the
cash flows estimated by financial analysis are
closely related to the contribution concept.

24. 7.The Concept of Negotiation Principle
• Changes in costs and revenues, all
commitments made in the short or long run,
interest rates, net cash flows, the contribution
margin that product E could (should) make to
the overall profitability of company, are all
negotiable.

25. THANK YOU
by- Pooja