Managerial

Economics

Course Objectives
To demonstrate the relation of managerial
economics to the other courses in business
To provide approaches of knowledge that
aid in thinking and learn how to analyze
business situations.
To show how the theoretical concepts can
actually be implemented

Meaning of Business
Economics
Integration of economic theory with
business practice.
Applied economics

Topics
Introduction
Definition
Nature and Scope of Managerial
Economics

Definitions
Managerial economics is the use of
economic modes of thought to analyze
business situations.
McNair and Meriam
Managerial Economics is concerned with
the application of economic principles and
methodologies to the decision-making
process within the firm or organization
under the conditions of uncertainty
Prof. Evan J
Doughlas.

 The integration of economic theory with

business practice for the purpose of facilitating
decision-making and forward planning by
management.
Spencer and Siegelman
Managerial economics is the application of
economic theory and analysis to practice of
business firms and other institutions.

Hailstone and
Rothwel.

The emergence of managerial

economics as a separate course of
management studies because of following
three factors:
Growing complexity of business decision
making process due to changing market
conditions and business environment.
The increasing use of economics logic,
concepts, theories and tools of economics
analysis in the process of business decision
making.
Rapid increase in the demand for
professionally trained managerial
manpower

Managerial economics
is the use of economic analysis to
make business decisions involving
the best use (allocation) of an
organizations scarce resources.

Managerial economics deals

with
How decisions should be made by
managers to achieve the firms goals - in
particular, how to maximize profit.
(Also government agencies and
nonprofit institutions benefit from
knowledge of economics, i.e. efficient
recourse allocation is important for them
too...)
It is absolutely essential for a manager to
understand economics in order to be able
to take sound managerial decisions.

Management
Decision Problems
Economic
Concepts

Decision Sciences
Managerial
Economics

Optimal Solutions to Managerial

Decision Problems

 Management Decision Problems

Product Price and Output

Make or Buy
Production Technique
Stock Levels
Advertising Media and Intensity
Labor Hiring and Training
Investment and Financing

Economic Concepts
Framework for Decisions
Theory of Consumer Behaviour
Theory of the Firm
Theory of Market Structure and Pricing

 Decision Sciences
Tools and Techniques of Analysis

Numerical Analysis
Statistical Estimation
Forecasting
Game Theory
Optimization
Simulation

Managerial Economics
Use of Economic Concepts and Decision
Science Methodology to Solve
Managerial Decision Problems

How does managerial economics

differ from regular economics?
There is no difference in the theory;
standard economic theory provides
the basis for managerial economics.
The difference is in the way the
economic theory is applied.

Scope of Managerial
Analysis
Managerial Economics comprises both micro and macro
economic theories.
The scope of managerial economics comprehends all
those economics concepts ,theories and tools of analysis
which can be used, to analyze the business environment
and to find solutions to practical business problems.
Scope is broadly divided into two categories
Operational or Internal issues (microeconomics)
Environment or External issues (macroeconomics)

Microeconomics Applied to
operational Issues
include all those problems which arises within
the business organization and fall within the
purview and control of the management
Eg :

Choice of business and the nature of the product.

Choice of size of the firm i.e how much to produce.
Choice of technology i.e, choosing the factor
combination.
Choice of price i.e., how to price the commodity.
How to promote sales.
How to manage profit and capital.

The following microeconomics theories deal with most of the

mentioned problems.

Theory Of Demand

Theory of Production

Analysis of market structure and pricing theory

Profit Analysis And Profit Management

Theory of capital &Investment Decisions

Macroeconomics applied to
managerial economics
Overall economic, social and political
atmosphere of the country.

Nature

Both micro and macro

Applied
Normative
Prescriptive
Conceptual as well as mathematical

Summary
Managerial Economics is the study of
business-decision making and strategy.
Economics provide valuable insights to
managers on topics such as costs, prices,
markets, mergers, globalization etc.
Management is about making choices.
Since economics is the study of decisionmaking, it should provide benefits to
managers