The presentation describes, difference between engineering design decision and Economic decisions, role and scope of Managerial Economics

1. Unit‐1
Scope of Managerial Economics,
Techniques and
Applications of Managerial Economics.
8/31/2016 1NHU 501 Dr N R Kidwai, JIT Barabanki

2. Engineering Economics
• Engineering economics deals with the methods that facilitates to
take economic decisions towards minimizing costs and/or
maximizing benefits to business organizations.
Engineering Economic decisions
Capital Budgeting decisions: One of the engineer's primary tasks is to
plan for the acquisition of equipment that will enable the firm to
design and produce products economically . With the purchase of a
fixed asset (equipment), we need to estimate the profits (precisely,
the cash flows) that the asset will generate during its service period.
i.e, we have to make capital-expenditure decisions based on future
predictions. An inaccurate estimate of asset needs can have serious
consequences
8/31/2016 2NHU 501 Dr N R Kidwai, JIT Barabanki

3. Engineering design decisions Vs
Economic decisions
• In a design problem , the engineer uses known physical
properties, the principles of science, mathematical modeling of
phenomenon, design correlations, to arrive at a workable and
optimal design judgment.
If the judgment is right, calculations are correct, the design is
time invariant. i.e if the engineering design to meet a particular
need is done today, next year, or in five years time, the final
design will not change significantly until technological advances
and new associated needs lead to change.
8/31/2016 3NHU 501 Dr N R Kidwai, JIT Barabanki

4. Engineering design decisions Vs
Economic decisions
• In considering economic decisions, are based on measurement of
investment attractiveness. However, information required in such
evaluations always involves predicting or forecasting (demand,
product selling price, and various costs).
All such forecasts have two things in common. First, they can never
be completely accurate. Second, a forecast made today is likely to
be different than one made at some point in the future.
• It is this ever-changing view of the future that can make it
necessary to revisit and even change previous economic decisions.
• Thus, unlike engineering design outcomes, economic evaluation are
mostly not time invariant. Economic decisions have to be based on
the best information available at the time of the decision and a
thorough understanding of the uncertainties in the forecasted data.
8/31/2016 4NHU 501 Dr N R Kidwai, JIT Barabanki

5. Role and scope of Managerial Economics
8/31/2016 5NHU 501 Dr N R Kidwai, JIT Barabanki
Management decision Problems
•Product Pricing and supply
•Production or trade
•Production technology
•delivery mode / Promotion
•Investing and Financing
Economic Concepts (Decision Frame work)
•Theory of demand/ supply
•Theory of consumer behavior
•Theory of firm
•Market structure and pricing
Decision Sciences (Analysis Techniques)
•Numerical Analysis
•Statistical Analysis
•Forecasting
•Optimization techniques/ Game theory
Management Economics
•Use of Economic Concepts & Decision sciences
to solve managerial decision problems
•Optimal Solution to managerial decision problems