Managerial economics chapter two.ppt slide share

Managerial economics, chapter one this chapter helps both students and teachers to understand more concept about managerial economics

1. Understanding the Role of Economics in Business Decisions

2. The business decision-making process has become increasingly complex due to ever growing complexity of the business world. Experiences acquired through traditional training are no longer sufficient to meet the managerial challenges. Thus making an appropriate business decision requires a clear understanding of market condition, market fundamentals and the business environment . As a result, the application of economic concepts, theories, logic and analytical tools in the assessment and prediction of market conditions and businesses environment have proved to be of great help in business decision making.

3. Economics is a social science, it studies how nations make decision to allocate their resources between competing needs of society so that economic welfare of the society can be maximized. Managerial Economics is the integration of economics theory (application of Economics theory) with business practice for the purpose of facilitating decision making and forward planning by management.

4. Relationships between Managerial Economics and Related Disciplines Fig 1.1 Relationships between Managerial Economics and Related Disciplines Economic concepts Ex. Theory of market structure and pricing Decision sciences / tools Ex. optimization Managerial Economics Management Decision Problem Optimal solution to managerial decision problem

5. The manager is the person who organizes factor of production, introduce new ideas or product or processes, make the business decisions and is held accountable for success or failure. It helps managers in profit-seeking and non-profit sectors Provides framework for efficient resource allocation . Responding to economic signals (e.g., price changes).

6. It concerned with only the economic environment, and in particular with those economic factors which form the business climate, specifically microeconomics. Micro Economics focuses on individual economic behavior (individual households) and firms and their interaction in the market where resources are costly, e.g., how consumers respond to changes in prices and income, how businesses decide on employment and sales. Macro economics deals with the aggregate economic variables or the economic system as a whole. It addresses question like the effect of changes in investment, government spending, employment, exchange rates, and inflation, unemployment, import and export policies. It shows how fiscal and monetary policies can keep the aggregate system working well .

7. Cont’d The scope of managerial economics to managerial issues is more limited to microeconomics focusing on those topics like demand, production, cost, pricing, and market structure.

8. Making an optimal economic decision is a very difficult task for most managers. There is always a problem of choice when two or more alternative courses of action are variable. Some of the business decisions, which have economic content, are includes : Profit decision: may include decisions about level of profit, rate of profit reinvestment. Demand decision: the management of the firm has to estimate current and future demands for the output produced by the firm.

9. Cont’d Production decision : The decision may include what, how, when and to whom produce. Moreover the decision goes to what should be the scale of production? What should be the product mix. Price and output decisions : such decisions focus on in what price and in what quantity are the products sold in the commodity market in order to maximize the firm’s profit. Investment decision: the major issues related to such decision may be how much to invest? What should be the rate of investment? Or choice of investment projects.

10. The ability to make good decisions is the key to successful managerial performance. The success of every decision depends mainly on decision process.

11. Cont’d

12. Cont’d First , the decision maker must establish or identify the objectives of the organization. The failure to identify organizational objectives correctly can result in the complete rejection of a well-convinced and well-implemented plan. Next , the decision maker must identify the problem requiring a solution. Third , once the source(s) of the problems is (are) identified, the manager can move to an examination of potential solutions .

13. Cont’d Fourth, Formulation of a model (a model is an analytical tool that helps for making decision under different situation). After all alternatives have been identified and evaluated the best alternatives have been chosen using the model. The final step in the process is the implementation of the decision. This phase often requires constant monitoring to ensure that results are as expected. If they are not, corrective action needs to be taken when possible.

14. Thank you!