LESSON 01: INTRODUCTION TO MANAGERIAL ECONOMICS

Managerial Economics is also called as?

"Industrial Economics" or "Business Economics"

is important as it is applied to day-to-day dilemmas and concerns

(Managerial Economics and Micro Economics) Microeconomic Analysis

Economic Theory and Concepts

- Demand - Supply - Cost - Competition - Market

major bare bones of Microeconomics that underpins Managerial Economics.

- Demand Analysis and Forecasting - Theory of Price - Theory of Revenue and Cost - Theory of Supply and Production

Quantitative Approach

- Mathematical Economics - Econometrics

Management includes a number of functions:

- Planning - Organizing - Staffing - Directing - Controlling

(How to produce it?) The managers can use various managerial economics tools for making crucial decisions such as:

- production and cost analysis - project appraisal methods

Managerial economics uses these two for rational managerial decision making.

1. Economic theory 2. Econometrics

The fact of scarcity of resources gives rise to three fundamental questions:

1. What to produce? 2. How to produce? 3. For whom to produce?

The definition given by _____ endorses the opinion of Marshall. He defines Economics as "the study of economic welfare that can be brought directly and indirectly, into a relationship with the measuring rod of money".

AC Pigou (Arthur Cecil Pigou)

concerned with recording the financial operations of a business firm.

Accounting

- the "Father of Economics" - defined economics as the study of nature and the use of national wealth'.

Adam Smith

- one of the greatest economists of the nineteenth century - writes "Economics is a study of man's actions in the ordinary business of life: it enquires how he gets his income and how he uses it". Thus, it is one side, a study of wealth; on the other, and more important side; it is the study of man

Dr. Alfred Marshall

is defined as the use of statistical tools for assessing economic theories by empirically measuring the relationship between economic variables. It uses factual data for the solution of economic problems.

Econometrics

is a study of human activity both at the individual and national level.

Economics

- is regarding who should consume and claim the goods and services produced by the firm. - The firm, for instance, must decide which is its niche market-domestic or foreign. - It must segment the market. It must conduct a thorough analysis of market structure and thus make price and output decisions depending upon the type of market

For whom to produce?

- relates to how to produce goods and services. - firm has now to choose among different alternative techniques of production - has to make decisions regarding the purchase of raw materials, capital equipment, manpower, etc.

How to produce?

defined economics as 'the study of the administration of scarce means and the determinants of employment and income".

Lord Keynes

- refers to the firm's decision-making process. It could be also interpreted as "Economics of Management". - the applications of economics theory and methodology to business administration practice. - makes use of economic theory and concepts. It helps in formulating logical managerial decisions. - science dealing with the effective use of scarce resources. - applies micro-economic tools to make business decisions.

MANAGERIAL ECONOMICS

- study of 'aggregate' or total level of economic activity in a country - studies the flow of economic resources or factors of production - deals with the price level in general - has less direct relevance in the study of the theory of firm

Macroeconomics

Is the science and art of getting things done through people in formally organized groups. It is necessary that every organisation be well managed to enable it to achieve its desired goals.

Management

- deals with allocating scarce resources in a manner that minimizes the cost. - is different from microeconomics and macroeconomics because it has a more narrow scope - it is solving managerial issues using microeconomics.

Managerial Economics

provides us a basic insight into seeking solutions for managerial problems.

Managerial Economics

- A managerial economist depends chiefly on accounting information as an important source of data required for his decision-making purpose. - The main task of management accounting is to provide the sort of data, which managers need if they are to apply the ideas of managerial economics to solve business problems correctly.

Managerial Economics And Accounting

Managerial economics helps the management in decision-making. These decisions are based on the economic rationale and are valid in the existing economic environment.

Managerial Economics for the administration of the organization

None of the organizations works in isolation. They are affected by the external environment of the economy in which it operates

Managerial Economics has components of macroeconomics

Managers study and manage the internal environment of the organization and work for the profitable and long-term functioning of the organization.

Managerial Economics has components of microeconomics

- a science of making decisions about scarce resources with alternative applications - body of knowledge that determines or observes the internal and external environment for decision-making - also universally applicable partially if not fully.

Managerial Economics is a Science

Managerial Economics deals with human beings. The nature and attitude differ from person to person. Thus to cope with dynamism and vitality managerial economics also changes itself over some time.

Managerial Economics is dynamic in nature

A managerial economist is required to have the art of utilizing their capability, knowledge, and understanding to achieve the organizational objective.

Managerial Economics requires Art

The resources are scarce with alternative uses. Managers need to use these limited resources optimally.

Managerial economics is helpful in optimum resource allocation.

The study of an individual consumer or a firm (also called the Theory of Firm).

Microeconomics

defined Economics as "the science, which studies human behavior as a relationship between ends and scarce means with alternative uses". With this, the focus of economics shifted from 'wealth' to human behavior'.

Prof. Lionel Robbins

- Managerial Economics is associated with the economic theory which constitutes the ______ __ _____ - states that the primary aim of the firm is to maximize wealth.

Theory of Firm

- relates to what goods and services should be produced and in what amount/quantities - managers use demand theory to decide this.

What to produce?

To decide the amount of goods and services to be produced, the managers use methods of?

demand forecasting

examines consumer behavior with respect to the kind of purchases they would like: - to make currently and in the future; - the factors influencing the purchase and consumption of a specific good or service; - the impact of change in these factors on the demand for that specific good or service; - and the goods or services that consumers might not purchase and consume in the future.

demand theory

Managers study managerial economics because?

it gives them insight into the functioning of the organization.

To answer the three fundamental questions, a firm makes use of?

managerial economics principles

Micro means

one millionth

for hiring and acquiring inputs

production and cost analysis

for long-term investment decisions

project appraisal methods