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        INRODUCTION TO MANAGERIAL ECONMICS

What is Managerial Economics? Discuss the characteristics and
scope of managerial economics. How does economic theory cotribute to managerial decision ?

            Ans.                Economics is a social science, which studies human behavior  in relation to optimizing allocation of  available resources to achieve the given ends .

             The application of economic science is all pervasive .More specifically economic laws and tools of economic
analysis are applied a great deal in the  progress  of  business decision making . This has led to the emergence of a separate branch  of study called Managerial Economics .

                                                            “Managerial Economics is the study of eCOnomics theories,logic  and  tools  of  economic  analysis  that  are   used in the process of  business decision making . Economic theoRYand technique of economic analysis are applied to analyze businesS  problems , evaluate business options and opportunities with a view To arriving at  appropriate business decision . Managerial economiCS is  thus  constituted  as  that  part  of  economic  knowledge , logic , 
   theories  and  analytical  tools  that  are  used  for  rational business decision making .

       Economics through ,variously defined is ESSentially  the  study  of  logic , tools and techniques of making opTImum use of the available resources to achieve the given ends. Economics thus provides analytical tool and           technique that managers need to achieve the goals of the organization they manage .

Baumaol has pointed out   there main contributions of economic theory to business. First one of the most important !Unexpected End of Formula

                        things which the economic theories can  contribute  to the manage-

                        -ment science is building analytical  models  which  help  to recog-

                        -nize  the  structure  of  managerial  problems , eliminate the minor

                        details which  might  obstruct decision making and help to concen-

                        -trate  on  the  main issue .
                   Secondly , Economic theory contributes

                        to the business analysis & set of analytical methods which may not

                        be  applied  directly  to  specific  business  problems , but  they  do

                        entrance the analytical capabilities of the business analyst .

                                                            Thirdly, Economic theories offer clarity to

                        the various concepts used  in  business analysis , which enables the

                        the managers to avoid conceptual pitfalls .

                                                            The areas of business issues to which eco-

                        -nomics  theories  can  be directly applied may be broadly divided

                        into  two  categories :- (a) Operational  or  internal  issues  and

                        (b) Environmental or external issues .

                        (a)        Operational problems are of internal

                        nature . They include all those problems which arise within the

                        business  organization  and  fall  within the preview and control of

                        the management . Some of the basic internal issues are (i) choice

                        of business and the nature of product i.e. what to produce ;

                        (ii) choice of size of the firm i.e.. how much to produce (iii) choice

                        of technology i.e. choosing the factor contribution ; (iv) choice of

                        price  i.e. how  to  price  the common ; (v) how to promote sales ;

                        (vi) How  to  face  price  competition (vii) How  to  decide on new

                        investment ; (viii) How  to manage profit and capital ; (ix) How to

                        manage inventory i.e. stock of both finished goods and how mate-

                        -rial . The  Microeconomic  Theories   which  deals  most  of  these 

                        questions include :-

1.                  Theory of demand .

2.                  Theory of production and production decisions .

3.                  Analysis of market structure and pricing theory .

4.                  Profit analysis and profit management .

5.                  Theory of capital and investment decision .

 

   (b) Environmental issues  pertain to the general business environment in which a business operates . They are related to the overall economic ,social and political atmosphere

                        of  the  country . The  factors which  constitute  economic environ-

                        -ment of a country include the following factors :-

                        1.         The type of economic system of the country .

                        2.         General trend in production , employment , income , price ,

                                    savings and investment etc .

                        3.         Structure of the trends in the working of financial institutes

                                    e.g. banks , financial co-operations , insurance companies

                        4.         Magnitudes of trends in foreign trend

                        5.         Trends in labor and capital markets

                        6.         Government’s  economic  policies  e.g..  industrial  policy ,

                                    monetary policy , fiscal policy , price policy etc .

                        7.         Social factors like the value system of the society ,property

                                    rights , customs and habits .

                        8.         Social organizations like trade unions, customer’s co-op

                                    eratives and producers union .

                        9.         The degree of openness of the economy and the influence

                                    MNCs .

 

 

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