“Managerial economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management”. By Spencer & Siegelman
Nature of Managerial Economics.
ME is micro in character.
ME takes the help of macro economics.
ME is normative rather than positive in character
ME is prescriptive rather than descriptive
It is both conceptual and metrical
It helps in making wise choices.
Scope of Managerial economics
ME applied to operational areas
Theory of demand
Theory of production and production decisions
Analysis of market structure and pricing theory
Profit analysis and profit management
Theory of capital and investment decisions
Objectives of the business firm
(B) Environmental / external issues
Economic System of the country
General trends in production, prices, employment, income, savings, investment etc.
Structure of financial institutions
Magnitude of and trends in foreign trade
Trends in capital and labour markets
Degree of openness of the economy etc
Some Basic Concepts
Firm and Industry
Expenses and Losses
Revenue and Profit
Lay man’s profit
In accounting sense
In economic sense
Risk and Uncertainty
Risk & Uncertainty
(A) Risk : A low probability of an expected outcome (in common)
From business decision making point of view, risk refers to a situation in which a business decision is expected to yield more than one outcome and the probability of each outcome is known to the decision maker and can be reliably estimated.
(B) Uncertainty : It refers to a situation in which there are more than one outcome of a business decision and the probability of no outcome is known or can be meaningfully estimated.