Introduction Managerial Economics.pptx...

Managerial economics

1. Managerial Economics

2. Definition Managerial economics is the discipline that deals with the application of economic concepts, theories and methodologies to the practical problems of businesses/firms in order to formulate rational managerial decisions for solving those problems. “Managerial economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making.” -Mansfield

3. D efinition “Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.” –Spencer and Seigelman “A fundamental academic subject which seeks to understand and analyze the problems of business decision making.” – D.C. Hague

4. Nature of Managerial Economics It is essentially microeconomic in nature. It is pragmatic. It belongs to normative economics, i.e. besides being descriptive, it is also prescriptive. It is conceptual in nature. It utilizes some theories of macroeconomics. It is problem solving in nature. It is multidisciplinary.

5. Scope of Managerial Economics Estimation of product demand Analysis of product demand Planning of production schedule Deciding the input combination Estimation of cost of product Analysis of cost of product Achieving economies of scale. Determination of price of product Analysis of price of product

6. Scope of Managerial Economics Analysis of market structures Profit estimation and planning Planning and control of capital expenditure

7. Significance of Managerial Economics 1. Decision Support:  Managerial economics provides a systematic framework for decision-making. Managers often face complex choices regarding production, pricing, resource allocation, and investment. By employing economic principles, managers can make informed decisions that align with the organization’s goals. 2 . Optimization of Resources:  A fundamental aspect of managerial economics is the optimization of resources. Through cost-benefit analysis and marginal analysis, managers can identify the most efficient allocation of resources, maximizing output while minimizing costs. 3 . Profit Maximization:  Managerial economics helps businesses pursue profit maximization by analyzing market conditions, determining optimal pricing strategies, and identifying cost-effective production methods. This is crucial for the long-term sustainability and growth of the organization.

8. Significance of Managerial Economics 4 . Market Analysis and Forecasting: Managers use managerial economics to analyze market trends, understand consumer behavior, and forecast demand for products or services. This information is essential for formulating effective marketing strategies and staying competitive in the market. 5 . Risk Management: In a dynamic business environment, managers face uncertainties and risks. Managerial economics assists in assessing and managing risks by incorporating risk analysis and decision-making under uncertainty into the decision-making process. 6. Policy Formulation: Managerial economics contributes to the formulation of organizational policies by providing insights into the economic implications of different policy choices. This includes pricing policies, investment policies, and strategies for entering new markets.

9. Significance of Managerial Economics 7. Efficiency Improvement:  By focusing on optimization and resource allocation, managerial economics helps improve overall efficiency within an organization. Identifying and addressing inefficiencies leads to cost reduction and improved productivity. 8 . Strategic Planning:  Managerial economics plays a crucial role in strategic planning. Managers use economic analysis to evaluate the long-term impact of various decisions on the organization’s competitiveness and sustainability, considering factors such as market trends, technological advancements, and regulatory changes. 9 . Understanding External Environment:  Managerial economics helps managers understand and respond to changes in the external economic environment. Awareness of factors like inflation rates, interest rates, and global economic trends enables organizations to adapt to external conditions.

10. Significance of Managerial Economics 10. Performance Evaluation:  Managerial economics provides tools for evaluating the performance of different business units or projects. Performance metrics derived from economic analysis help in assessing the success of strategies and initiatives. 11 . Resource Utilization in Multinational Companies:  In the context of multinational companies, managerial economics aids in optimizing resource utilization across different countries, considering factors like exchange rates, trade policies, and international market conditions.

11. Micro and Macro economics Micro Macro 1. It studies the individual unit. 1. It studies the whole economy or large group. 2. It provides information relating to the individual prices, individual consumption and production. 2. It provides the information relating to National Income, total output, total consumption and general price level. 3. Its analysis is simple. 3. Its analysis is complex due to the study of large groups. 4. It focus on price analysis. 4. It focus on income analysis. 5. Its central problem is price determination and allocation of resources. 5. Its central problem is determination of level of income and employment.

12. Role of Economics in Business Decision making Business economists serves as indispensable assets to organizations, facilitating effective decision-making and business planning. Their multifaceted roles encompass identifying problems, providing a quantitative foundation for decision-making, offering advisory services, and enhancing awareness of the business environment. These roles are elaborated below:  1. Identifying Business Problems A business economist’s role begins with identifying problems. In the evolving business landscape, companies grapple with many issues that can hinder their growth and stability.

13. Role of Economics in Business Decision making These problems might manifest as labour disputes, pricing challenges, or regulatory hurdles. The business economist must spot these issues, dive deep into their root causes, and meticulously assess their impacts on the company’s operations. Once armed with a comprehensive understanding, they can propose well-reasoned alternatives and corrective measures for management to consider. Business economists are tasked with designing courses of action that will rectify existing issues and help the company maintain and improve its systems. This proactive approach ensures businesses stay agile and adaptable in a constantly changing market.

14. Role of Economics in Business Decision making 2. Providing a Quantitative Foundation Experience and expertise converge in business economics to deliver a solid quantitative foundation for decision-making and forward planning. Business economists leverage their vast knowledge to evaluate a wide array of factors that affect a controllable and uncontrollable business. This includes examining production, marketing strategies, and organisational models. The ultimate goal is to devise management techniques to boost production efficiency while reducing operating costs. Quantitative analysis is a cornerstone of this process, enabling business economists to present management with data-driven insights. By providing empirical evidence and numerical assessments, they equip organisations with the tools to make well-informed decisions, set realistic goals, and plan for a successful future. 

15. Role of Economics in Business Decision making 3. Advisory to the Company Business economists don many hats, one of which is that of an advisor. Their role extends beyond economic matters to encompass a broad spectrum of issues. Drawing from their wealth of experience, business economists offer guidance on critical aspects of a business’s operations. This includes advising on investment strategies, sales promotion tactics, competition analysis, financial health evaluation, labour relations management, and government policy compliance. By their expertise, business economists play a vital role in helping organisations navigate a complex business landscape. They provide essential insights and suggestions, empowering business leaders to make decisions that are not only financially sound but also aligned with the broader interests of the company.

16. Role of Economics in Business Decision making 4. Knowledge About the Environment Factors For a business to thrive, it is essential to comprehend and adapt to its environment. Business economists bridge the company and its surroundings, ensuring that businesses remain resilient and responsive. Understanding the environment involves scrutinising both external and internal factors. On one hand, some external forces and conditions lie beyond an organisation’s control. These can include economic trends, political developments, and regulatory changes. A business economist must know these external factors to help the company prepare for potential challenges and seize opportunities. On the other hand, internal factors firmly within the company’s domain influence operations. These can encompass the company’s internal structure, workforce, and operational processes. An adept business economist is well-versed in optimising these internal factors to minimise costs and enhance efficiency.