Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
qMeaning and Definition The Science of managerial Economics has emerged only recently. With the growing variability and unpredictability of the business environment. The problem of the business world attracted the attentions of the academicians from 1950 onwards. Managerial Economics as a subject gained popularity in the USA. After the publication of the book Managerial Economics by Joel Dean in 1951
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Meaning & Definition Cont-Managerial Economics generally refers to the integration of economic theory with business practice. Economics provides tools, managerial economics applies these tools to the management of business. It enables the business executive to assume and analyze things. Every firm tries to get satisfactory profit even though economics emphasizes maximizing of profit. Hence it becomes necessary to redesign economic ideas to the practical world.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Meaning & Definition Cont-Variety of Definitions Managerial Economists have defined managerial economics in a variety of ways: According to E.F. Brigham and J.L. paper, managerial Economics is the application of economic theory and methodology to business administration practice. To Christopher Savage and John R. Small: Managerial Economics is concerned with business efficiency.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Meaning & Definition Cont-Variety of Definitions Milton H. Spenser and Lonis Siegelman define managerial economics as the integration of economics theory with business practice for the purpose of facilitating decision making and foreword planning by management. In the opinion of W.W. Hayness Managerial economics is the study of the allocation of resources available to a firm of other unit of management among the activities of that unit.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Managerial Theory
Managerial theory refers to those aspects of economic theory and application which are directly relevant to the practice of management and the decision making process. Managerial theory is pragmatic it is concerned with those analytical tools which are useful in improving decision making.
Economic theory Vs Managerial Theory ContEconomic theory deals with a study of distribution theories of rent, wages interest and profits. But managerial theory deals with a study of only profit theories. Economic theory is based on certain assumptions. But in managerial theory these assumptions disappear due to practical situations. Economic theory is both positive and normative in character but managerial theory is essentially normative in nature. Economic theory studies only economic aspects of the problem whereas managerial theory studies both economic and non economic aspects.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Nature of Managerial Economics cont-Why Decisions are taken? The decisions are taken to achieve certain objectives. Quantitative techniques are also used in decision making, but it is important to remember other variables such as human and behavioral considerations, technological forces and environmental factors influence the choices and decisions made by mangers. Steps in Decision Making Set objectives Define the problem Find possible alternative solutions Select the best solution And proceed with that choice
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Inventory Management
An inventory refers to a stock of raw materials which a firm keeps. Managerial will use such methods as Economic order Quantity (EOQ) approach.
Advertising
To produce a commodity is one thing and to market it is another. Expenditure on advertising and related types of promotional activities is called selling costs by economists. Methods of Advertising: Percentage of Sales Approach All You can Afford Approach Competitive Parity Approach Objective and task Approach Return on Investment Approach
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Profit Management
In appraising a company, we must first understand how profits arise. The concept of profit maximization is very useful in selecting the alternatives in making a decision at the firm level. Profit forecasting is an essential function of any management. Managerial economics tries to find out the cause and effect relationship by factual study and logical reasoning. For example, the statement that profits are maximum when marginal revenue is equal to marginal cost, a substantial of economic analysis of this deductive proposition attempts specific conclusions about what should be done.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Capital Management
Planning and control of capital expenditure is the basic executive function. The capital budgeting process takes different forms in different industries. It involves the equimarginal principle. The objective is to assure the most profitable use of funds, which means that funds must not be applied when the marginal returns are less than in other uses.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Managerial Economics & Operation Research Mathematicians, statisticians engineers and others rearmed up together and developed models and analytical tools which have since grown into specialized subject, known as operation research. The basic purpose of the approach is to develop a scientific model of the system which may be utilized for policy making.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Managerial economics uses the following methods to explain and solve business problems of the firm: Scientific method The statistical method Method of intellectual experiment The method of simulation The historical method The descriptive method
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Scientific Method
Scientific method is a branch of study which is concerned with observed facts systematically classified and which includes trustworthy method for discovery of truths. Scientific method alone can bring about confidence in the validity of conclusions. We usually adopt an inductive as well as deductive approach in any analysis of managerial behaviour.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Decision making is integral part of today s business management. Making a decision is one of the most difficult tasks faced by a professional manager. Managerial decisions are based on the flow of information. Decision making is both managerial function and organizational process. Purpose of the decision The purpose of the decision making as well as planning is to direct human behavior and effort towards a future goal or objective. A good decision is one that is based on logic, considers all available data and possible alternatives and applies the quantitative approach
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Role of Managerial Economist in Business Decision The basic decisions are those which are very important, a serious mistake will endanger the company s existence. The selection of location The selection of product line The decision relating to manage the business are all basic decisions.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Decisions
I. Production decision Production is an economic activity which supply goods and services for sale in a market to satisfy human wants, thereby profit maximization is made possible. A manager may face problems relating to best combination of the factors to gain maximum profit or how to use different machine hours for maximum production advatage.
Inventory Decision
The decision to hold inventories to meet demand is quite important for a firm and the level of inventories serves as a guide to plan production and is therefore a strategic management variable. Cost Decision In the absence of cost control, profits would come down due to increasing cost.
Marketing Decision
The marketing executive must make decisions on target market, market positioning, product development, pricing channels of distribution communication and promotion.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Marketing Decision
Sales Decision Purchase decision Sales decision is concerned with how much to produce and sell for maximizing profit. The purchase decision is concerned with the objective of acquiring these resources at the lowest possible prices so as to maximize profit.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Investment Decision
The problem of risks and imperfect foresight are very crucial for the investment decision. Investment decision covers issues like the decisions regarding the amount of money for capital investment, the source of financing this investment, allocation of this investment among different projects overtime.
Personnel Decision
Personnel decisions cover the areas of manpower planning, recruitment, selection, training and development, performance appraisal
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
With the advent of managerial revolution and transition from owner- manager to professional executive, the managerial economist have occupied an important place in modern business. Organizationally, a managerial economist is placed nearer to the policy maker simple because his main role is to improve the quality of policy making as it affects short term operation and long range planning.
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik
Internal factors
The managerial economist can help the management in making decision regarding the internal operations of a firm in respect of such problems as cost structure, forecasting of demand and price. i. What should be the production schedule ii. What should be the profit iii. What type of technology should be adopted iv. What strategies have to be adopted v. What are the factors influencing the input cost
Class: BA13 /PT Copy right Dhaqaalaha.com Instructor: Mahad Mohamed Sheik