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  1. 1. Dr.K.Baranidhara n Present by…
  2. 2. Engineering Economics & Financial Accountingment Ee&fa 213 July 2013
  3. 3. Prepared by : Dr. K. BARANIDHARAN ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING Sri Sairam Institute of Technology3
  4. 4. ENGINEERING ECONOMICS Engineers have an added responsibility and that is to include economics in their calculation & decisions. When the economics principles are applied to engg. Problems, then a new branch of knowledge called engineering economics Sri Sairam Institute of Technology 4
  5. 5. ECONOMICS Economics is a social science that studies the behavior of human beings. Organization or any entity mode up of human beings in situations involving choice. Sri Sairam Institute of Technology 5
  6. 6. ECONOMIC ACTIVITIES The activities are carried out with the purpose of earning on income or making money, they are called economic activities. Activities involvue MONEY Earning income in either CASH or KIND Sri Sairam Institute of Technology6
  7. 7. NON-ECONOMIC ACTIVITIES The activities that are performed out of LOVE, affection and social concern but not for money Sri Sairam Institute of Technology7
  8. 8. ECONOMIC CIRCLE Sri Sairam Institute of Technology 8
  9. 9. ECONOMICS - DEFINITION  FATHER OF ECONOMICST:- Adam Smith defined economics as “Economics is the sciences of wealth”  wealth?  Wealth has been defined as “stock of goods existing at a given time that have money value”.  classification of wealth.  Personal wealth(individual wealth)  Social wealth( collective wealth)  National wealth (a+b)  Cosmopolitan wealth (e.g. ocean) Sri Sairam Institute of Technology9
  10. 10. Alfred Marshall Economics is defined as “a study of mankind in the ordinary business of life”  Lionel Robbins’:Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative usesSri Sairam Institute of Technology 10
  11. 11. MICRO ECONOMICS Micro means small. Micro economics deals with problems such as the output of a single firm, price of a single commodity and spending on goods by a single household. Sri Sairam Institute of Technology11
  12. 12. MACRO ECONOMICS Macroeconomics studies the economic system as a whole. In it, we get the complete picture of the working of the economy. It is a study of economic aggregate such as total employment, savings, and investmentSri Sairam Institute of Technology12
  13. 13. DIVISION OF ECONOMICS Consumption Production Exchange Distribution Public Finance Sri Sairam Institute of Technology13
  14. 14. types of the economic systems CAPITALIST ECONOMY: An economic system based on private ownership of capital Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists. Sri Sairam Institute of Technology14
  15. 15. MIXED ECONOMY Both private individuals and government participate in seeking answers for the above economic. Sri Sairam Institute of Technology15
  16. 16. FREE OR LAISSEZ-FARE ECONOMY The economy where government keeps its hands off such major economicSri Sairam Institute of Technology16
  17. 17. MANAGERIAL ECONOMICS MEANING Managerial economics is economics applied in decision making. It is the branch of economics which serves as a link between abstract theory and managerial practice. It is based on the economic analysis for identifying problems,organizing information and evaluating alternatives S R I S A I R A M I N S T I T U T E O F T E C H N O L O G Y 17
  18. 18. DEFINITIONS OF M E Sri Sairam Institute of Technology 18  ―Managerial economics is the of economic modes of thought to analyse business situationǁ •-MC.NAIR AND MERIAM  ―Managerial economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management.
  19. 19. NATURE OF M E • 1. It is microeconomic in character as it concentrate only on the study of the firm not on the working of the economy • 2. It takes help from the macroeconomics to understand the environment in which the firm operates‘ • 3. It is normative rather than positive i.e., it gives answer for the question what ought to be than what is,was. • 4. It is both conceptual and metrical. Sri Sairam Institute of Technology 19
  20. 20. SRI SAIRAM INSTITUTE OF TECHNOLOGY 20 • 5. It focuses mainly on the theory of the firm than on distribution„ • 6. Knowledge of managerial economics helps in making wise choices. i.e., choices among scarcity of resources. • 7. It is goal oriented i.e., aims at achievement of objectives
  21. 21. SIFNIFICANCE OF M E  1. It helps in decision making  2. Decisionmaking means a balance between simplification of analysis to be manageable and complication of factors in hand  3. It helps the manager to become an more competent builder  4. It helps in providing most of the concepts that are needed for the analysis of business problems,  The concepts such as elasticity of demand ,fixed, variable cost, SR and LR costs, opportunity costs,NPV  etc., Sri Sairam Institute of Technology 21
  22. 22. 5. It helps in making decisions in the following. What should be the product mix? Which is the production technique? What is the i/p mix at least cost? What should be the level of output and price? How to take investment decisions? How much should the firm advertise Sri Sairam Institute of Technology22
  23. 23. OBJECTIVES OF M E To help in understanding the market condition & general economic environment with in which the firm operate. To provide a philosophy for understanding & analyzing resource allocation problem Sri Sairam Institute of Technology23
  24. 24. SCOPE OF M E  Objectives of a business firm  Demand analysis and forecasting  Cost analysis  Production management  Supply analysis  Pricing decisions, policies and practices  Profit management  Capital budgeting and investment decisions  Decision theory under uncertaintySri Sairam Institute of Technology24
  25. 25. MAIN AREA OF M E, 1.DEMAND DECISION THe Forecasting Of Demand For A Given Product And Service Is The First Task Od The ME. The behavioural implication such as the customer response to given changes of price and supply. The changes of income levels of customer Sri Sairam Institute of Technology25
  26. 26. 2.INPUT-OUTPUT DECISION The cost of inputs in relation to output are studied to optimise profits. Production and cost function are estimated to certain parameters,Sri Sairam Institute of Technology26
  27. 27. 3.PRICE-OUTPUT DECISION The Production Is Ready And The Task Is Determine The Price In Different Market Situation Such As Perfect And Imperfect Markets Ranging From Monopoly. Sri Sairam Institute of Technology27
  28. 28. 4.PROFIT - RELATED DECISION The technique such as Break Even Analysis, cost reduction and control and ratio analysis to ascertain the level of profit. Sri Sairam Institute of Technology28
  29. 29. 5.INVESTMENT DECISION Investment decision are also called capital budgeting decisions. Involve the large fund commitment, which determine the fate of the firm. Sri Sairam Institute of Technology29
  30. 30. 6.ECONOMIC FORECASTING AND FORWARD PLANNING  The economic forecasting leads to the forward planning.  The firm operate environment which is dominated by the INTERNAL AND EXTERNAL factors.  EXTERNAL: govt policy, competitation, employment, labour, human resources, finance, marketing..  INTERNAL: policies, procedures relating to the finance, people, market and products….Sri Sairam Institute of Technology30
  31. 31. M E related with OTHER DISCIPLINES Managerial Economics and Traditional Economics: Economics and Managerial economics both are facing identical problems,i.e., problem of scarcity and resource allocation. Since labour and capital are always limited it must find way for effective utilizing of theseSri Sairam Institute of Technology31
  33. 33. 1. M E OPERATIONS RESEARCH  Both operations research and managerial economics are concerned with taking effective decisions, managerial economics is a undamental academic subject which seeks to understand and to analyse the problems of business decision making while OR is an activity carried out by functional specialist within the firm to help the manager to do his job of solving decision problems Sri Sairam Institute of Technology33
  34. 34. ITS MAIN CONTRIBUTION TO MANAGERIAL ECONOMICS OR models like queuing,linear programming etc.., are widely used in managerial economics Model building, economic models are more general and confined to broad economic decision making Sri Sairam Institute of Technology34
  35. 35. 2.ML ECONOMICS AND MATHEMATICS Mathematics is closely related to managerial because managerial economics ,being conceptual but also metrical. Its metrical property is used to estimate and predict the relevant economic factors for decision making and forwardSri Sairam Institute of Technology35
  36. 36. ITS MAIN CONTRIBUTION TO MANAGERIAL ECONOMICS Geometry, algebra and calculus Logarithms and exponential, vectors and determinants, input-output tables etc., Even OR can be included as a part of mathematical exercise Sri Sairam Institute of Technology36
  37. 37. 3. MANAGERIAL ECONOMICS AND STATISTICS Statistics is widely used in managerial economics. It is mainly needed for a correct judgement and decision making ITS MAIN CONTRIBUTION TO MANAGERIAL ECONOMICS To handle the unforeseen circumstances the theory probability is mainly used.Sri Sairam Institute of Technology37
  38. 38. THE THEORY OF DECISION MAKING The theory of decision making is relatively a new subject that has significance for managerial economics. Much of economic theory is based on the single goal MAXIMISATION OF PROFIT, but theory of decision making recognizes the multiplicity of goals and the pervasiveness ofSri Sairam Institute of Technology38
  39. 39. 5.ROLE OF MANAGERIAL ECONOMIST IN BUSINESS The task of organizing and processing information and then making an intelligent decision based upon two general forms Task of making Specific decisions Sri Sairam Institute of Technology39
  40. 40. Task of making Specific decisions  Production scheduling  Demand forecasting  Market research  Economic analysis of the industry  Investment appraisal  Security management appraisal  Advice on trade  Advice on foreign exchange management  Pricing and related decisions Sri Sairam Institute of Technology40
  41. 41. Task of making General decisions Analysing the general economic condition of the economy Analyzing the demand for the product Analysing the general market condition of the economy Sri Sairam Institute of Technology41
  42. 42. 6.ACCOUNTANCY Accountant provides accounting information relating to cost, revenues, receivables, payables, profit/losses. In the data performance of the firm result. Decision making and forward planning.Sri Sairam Institute of Technology42
  43. 43. 7.PSYCHOLOGY CONSUMER PSYCHOLOGY is the bsis on which a ME acts. The customer react the change the price or supply and it is effect of demand/profits is the main focus study of ME. Sri Sairam Institute of Technology43
  44. 44. 8.Organisational behaviour The study develop behavioural model of firm integrating the manager‟s behaviour with that of the owner. Sri Sairam Institute of Technology44
  45. 45. Dr.K.Baranidharan THANK YOU