2. Definition
• According to Spencer and Siegelman “Managerial
Economics is the integration of economic theory with
business practice for the purpose of facilitating decision-
making and forward planning by management.”
• Brigham and Pappas believe that managerial economics is
“the application of economic theory and methodology to
business administration practise.”
• Hague, on the other hand, views managerial economics as
“a fundamental academic subject which seeks to
understand and to analyse the problems of business
decision-making”.
3. Features
• ME is concerned with decision-making of economic
nature. This implies that managerial economics deals with
identification of economic choices and allocation of scarce
resources.
• ME is goal-oriented and prescriptive .It deals with how
decisions should be made by managers to achieve the
organisational goals.
• ME is pragmatic. It is concerned with those analytical
tools which are useful in improving decision-making.
• It is both conceptual and metrical. An intelligent
application of quantitative techniques to business.
• It provides a link between traditional economics and the
decision sciences for managerial decision-making
4. Nature
• Macro-economic conditions-
• (i) The economy in which the business operates is
predominantly a free enterprise economy using prices and
market.
• The present-day economy is the one undergoing rapid
technological and economic changes
• The intervention of government in economic affairs has
increased in recent times and there is no likelihood that
this intervention will stop in future.
5. Contd.
• Micro-economic Analysis
• This deals with the problems of an individual
firm,industry, consumer,etc.
• In the case of managerial economics , micro-economics
helps in studying what is going on within the firm;
• How best to use the available scarce resources between
various activities of the firm;
• How to be technically as well as economically efficient
6. Scope
1. Demand Analysis and forecasting,
2. Cost Analysis
3. Production and Supply Analysis
4. Pricing decisions, Policies and Practices
5. Profit Management
6. Capital Management
7. Demand Analysis and Forecasting
• Demand analysis helps identify the various factors
influencing the demand for a firm’s product
• It is essential for business planning and occupies a
strategic place in Managerial Economics
• It mainly consists of discovering the forces determining
sales and their measurement.
8. Cost Analysis
• A study of economic costs, combined with the data drawn
from the firm’s accounting records, can yield significant
cost estimates that are useful for management decisions
• The factors causing variations in costs must be recognised
• An element of cost uncertainity exists because all the
factors determinig costs are not always known as
controllable.
• Discovering economic costs and being able to measure
them are necessary steps for more effective profit
planning,cost control and often for sound pricing practises.
9. Production and Supply Analysis
• Production analysis is narrower in scope than cost
analysis.
• Production analysis frequently proceeds in physical terms
while cost analysis proceeds in monetary terms
• Production analysis mainly deals with different production
functions and their managerial uses.
• Supply analysis deals with various aspects of supply of a
commodity.
• Certain important aspects of supply are: Supply schedule,
curves and function ,Law of supply and its limitations,
10. Pricing Decisions, Policies and
Practises
• Pricing is a very important area of Managerial Economics
• Price is the genesis of the revenue of a firm and as such the
success of a business firm largely depends on the
correctness of the price decisions taken by it.
• The important aspects dealt with under this area are : Price
Determination in various Market Forms, Pricing Methods,
Differential Pricing , Product-line Pricing and Price
Forecasting.
11. Profit Management
• Business firms are generally organisedfor the purpose of
making profits and, in the long run, profits provide the
chief measure of success.
• If knowledge about the future were perfect, profit analysis
would have been very easy task.
• Profit planning and measurement constitute the difficult
area are: Nature and measurement of profit,Profit Policies
and Techniques of profit planning like Break-Even
Analysis
12. Capital Management
• The most complex and troublesome for the business
manager are likely to those relating to the firm’s capital
investments.
• Capital management implies planning and control of
capital expenditure
• The main topics dealt with are : Cost of Capital, Rate of
Return and Selection of projects.
13. Significance
• Managerial economics provides a number of tools and
techniques to enable the manager to become a competent
model builder.
• M.E provides most of the concepts that are needed for the
analysis of business problems .Concepts of elasticity of
demand, fixed and variable costs, short and long-run
costs ,help in understanding and solving decision
problems.
• M.E is helpful in making decisions such as : What should
be the product-mix? Which is the production technique
and the input-mix that is least costly?
14. Methods of ME
1) The scientific Method or Experimental Method- The
blend of Inductive and Deductive method
2) The Statistical Method –is a device by which the
quantitative data are collected and scientifically
analyzed in order to give us a more clear picture of
happenings.
3) The Method of Simulation- This method has acquired
prominence with the oncoming of electronic computers.
4) The Description method- It is used by Managerial
Economist to analyse the impact of original structure on
the working of business enterprises
15. Contd.
5) Reference to facts and figures of the firm provides
complete information about the working of the firm.
Systematically an approach can be set up to compile the
data from the various departments of the firm.
6) Case studies undertaken would provide an invigorating
method in the learning process in the science of
Managerial Economics. Case studies bring out the
complexity of the environment in which the managers
have to take economic decisions
16. Concepts of Economics relevant to
business
1) Wants- Want refers to lack of satisfaction, a state of
discomfort which every individual desires to eliminate.
2) Utility- Utility is the capacity of a good to satisfy a
human want. Total utility and Marginal Utility
3) Demand- Demand is the desire backed by purchasing
power.
4) Supply- Supply of any commodity refers to various
amounts of the commodity which the sellers are willing
to sell at different possible prices at any given time.
5) Production- Production refers to creation of something
tangible which can be used to satisfy human want.
6) Distribution-
7) Consumption
17. Contd.
8) Cost
9) Price
10) Competition
11) Monopoly
12)Profit
13) Optimisation- Making the best possible use of available
resources to obtain the maximum possible desired quality
of output.
14) Average and Marginal
15) Elasticity
16) Micro and Macro Economics -
