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 .
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 .
