This document provides an introduction to managerial economics. It defines key economic concepts like scarcity and defines economics as the study of how society manages scarce resources. It explains that managerial economics uses economic tools and techniques to help businesses make optimal decisions regarding production, pricing, profits, and resource allocation. The document outlines the scope of managerial economics, its relationship to microeconomics and macroeconomics, and its integration of economic theory with business practice to facilitate decision making.

1. MANAGERIAL ECONOMICS
Chapter 1
Introduction: Nature & Scope

2. • Economy
 The word economy comes from a Greek word - “for one
manages a household”.
 The economy encompasses everything related to the
production and consumption of goods and services in an area
or region.
• Society and Scarce Resources
 The management of society’s resources is important
because resource are scarce.
 Scarcity means that society has limited resources and
therefore cannot produce all the goods and services
people wish to have.
 Scarcity implies choice and choice implies cost.
Introduction

3. Economics : Science of scarcity
• Scarce resources for society :
- Land
- Labour (L)
- Capital (K)
- Skill
• Scarce resources of a business unit :
- Men
- Machine
- Material
- Money
- Mineral
• Unlimited desires : Profitability (∏)

4. scarcity
Unlimited choice Limited resources
What to produce? How to produce? For whom to produce?

5.  Economics is the study of how society manages its
scarce resources.
 Economics as a science is concerned with the problem
of allocation of scarce resources among competing
ends (Desires).
What is Economics

6. Circular Flow of Economic Activity

7. Micro & Macro Economics
• Microeconomics focuses on the behaviour of the
individual actors on the economic stage i.e. firms
and individuals and their interaction to markets.
Managerial economics should be thought of as
applied microeconomics.
• Macroeconomics is the study of economic system
as a whole. It includes techniques for analyzing
changes in total output, total employment,
consumer price index, unemployment rate, exports
and imports. Macroeconomics addresses questions
about the effect of changes in investment,
government spending, tax policy on exports, output,
employment, prices

8. • What is Managerial Economics
 Managerial economics is the branch of economics
which deals with managing the scarce resources of a
firm.
 In managerial economics, the emphasis is upon the
firm, the environment in which the firm finds itself,
and the decisions which individual firms have to take.
 Managerial economics uses the tools and techniques
of economic theory for effective and efficient
utilization of economic resources, in order to optimize
the profitability of a business organization.
Introduction to Managerial Economics

9. • .
Nature of Managerial Economics
“Managerial Economics is the integration of
economic theory with business practice for the
purpose of facilitating decision making and
forward planning by the management.”
-Spencer & Seigelman

10. Managerial Economics Model

14. • Demand Analysis and Demand Forecasting
• Production Analysis
• Cost Analysis
• Pricing and Output
• Profit Management
Scope of Managerial Economics

15. • Managerial Economics is basically micro-economic in
characteristics.
• Managerial Economics takes the help of macro-
economics to understand and adjust to the
environment in which firm operates.
• Managerial Economics follows normative school of
thought rather than positive school.
• Managerial Economics is prescriptive rather than
descriptive, in approach.
• It is both conceptual (qualitative) as well as metrical
(quantitative).
• The contents of Managerial Economics are based mainly
on the ‘theory of the firm’.
Characteristics of Managerial Economics

16. Relationship of ME with other disciplines
• Mathematics : Geometry , algebra, calculus ,
determinants , vectors.
• Operations Research: Linear Programming ,
Queuing
• Statistics : Theory of probability
• Traditional Economics :