Managerial Economics

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Managerial Economics -Introduction:

Managerial Economics -Introduction Mrs. N. Jayaprada

Introduction :

Introduction Emergence of managerial economics as a separate course of management studies can be attributed to at least three factors Growing complexity of business decision making process due to changing market conditions and business environment. The increasing use of economic logic, conceptual theories and tools of economic analysis in the process of business decision making process. Rapid increase in demand for professionally trained managerial manpower.

Economics :

Economics Economics is a social science, which studies human behaviour in relation to optimizing allocation of available resources to achieve the given goals. Eg : individual household behaviour , firm, industry and nation. Economics is also a study of choice-making behaviour of the people.

Managerial Economics:

Managerial Economics Managerial economics can be broadly defined as the study of economic theories, logic and tools of economic analysis that are used in the process of decision making . Economic theories and techniques of economic analysis are applied to analyze business problems, evaluate business options and opportunities with a view to arriving at an appropriate business decision.


Definitions “Managerial economics is concerned with the application of economic principles and methodologies to the decision making process within the firm or organization. It seeks to establish rules and principles to facilitate the attainment of the desired economic goals of the management.” - Douglas

Definitions :

Definitions “The study of allocation of the limited resources available to a firm or other unit of management among the various possible activities of that unit.” – Henry and Haynes “Integration of economic theory and methodology with analytical tools for applications to decision-making about the allocation of scarce resources in public and private institution.” – Seo and Winger

Characteristics :

Characteristics Application of principles of Economics to solve managerial problems. Utilisation of resources in a goal oriented manner. Analysis of problems of decisions making. Facilitating forward planning. Analysis and decisions upon the economic issues underlying the choice and allocation of resources. Bridge between traditional economics and Business Management .


Art or Science – Both Micro Economics Operates against the backdrop of Macro economics Normative Prescriptive actions Applied in nature/Pragmatic Offers scope to evaluate each alternative Interdisciplinary Decisions relating in Partial Equilibrium Assumptions and limitations nature

Scope :

Scope Demand Analysis Cost Analysis Production analysis Pricing Practices and Policies Profit Management Capital Management Investment decisions Allied Disciplines

Importance :

Importance Basis of Business Policies Predicting Economic Quantities Estimating Economics relationship Helpful in Understanding the External forces constituting the environment. Reconciling theoretical concepts of economics in relation to the actual business behavior and conditions.

Responsibilities of Managerial Economists:

Responsibilities of Managerial Economists To make reasonable profits on capital employed. Successful forecasts Knowledge of sources of Economic Information His status in the firm

Role of Mgrl. Economist in the firm:

Role of Mgrl . Economist in the firm Demand estimation and forecasting Preparation of business /sales forecasts Analysis of market survey to determine the nature and extent of competition Analyzing the issues and problems of concerned industry


Cont.. Assisting the business planning process of the firm. Discovering new possible fields of business endeavor and its cost-benefit analysis. Advising on prices, investment and capital budgeting policies . Evaluation of capital budgeting etc.

Linkages with other disciplines:

Linkages with other disciplines

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