September 28, 2014 1

Introduction to Managerial
Economics
For PG Management Students
September 28, 2014 2
Economic Theory
Microeconomics
Study of the economic behavior of
individual decision-making units.
Relevance to Managerial Economics
Macroeconomics
Study of the total or aggregate level of
output, income, employment,
consumption, investment, and prices for
the economy viewed as a whole.

September 28, 2014 3
Economic Methodology
Economic Models
Abstract from details
Focus on most important determinants of
economic behavior cause and effect
Evaluating Economic Models
A model is accepted if it predicts
accurately and if the predictions follow
logically from the assumptions.

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Decision Sciences
Mathematical Economics
Expresses and analyzes economic
models using the tools of mathematics.
Econometrics
Employs statistical methods to estimate
and test economic models using
empirical data
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Factors for the Growth of ME

1.Complexity of Business Decision Making
Process due to:
Changing Market Conditions
Business Environment
2. Increasing use of economic logic,
concepts, theories and tools of analysis
in decision making
3. Increasing demand for professional
Managers

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The Definitions

Spenser and Seligman
Managerial Economics is the
integration of Economic Theory with
Business Practice for the purpose of
facilitating decision making and
forward planning by management.
September 28, 2014 7
Davis & Chang

Managerial Economics applies the
principles and methods of Economics
to analyze problems of a business
and to help find solution that
advances the best interest of such
organization.
September 28, 2014 8
Management Decision
Problems
Economic Theory
-Micro Economics
-Macro Economics
Decision Science
-Mathematical Economics
- Econometrics
Managerial Economics
Application of Economic
Theory & Decision
Science Tools
Optimal Solution to
Managerial Decision
Problems
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Decision Making Process
Defining the Problem
Identifying the factors / variables that
caused the problem
Determining the Objective /s
Exploring the alternative Solutions with
Prediction of the Consequences of each
* Social Constrains
* Organizational Constraints
* Input Constraints
Select the best solution and implement
Evaluate Performance
Improve for further use / Discard
September 28, 2014 10





Focus of a Manager
Intra
Org Envt
Intermediate
Envt.



Domestic
Envt
Global
Envt