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Role of managerial_economics_in_business_decision_making

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In this slide roles of managerial economics in business decision making are discussed.

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Role of managerial_economics_in_business_decision_making

  1. 1. Role of Managerial Economics in Business Decision Making
  2. 2. Introduction to Economics  Economics is a socio-economic science and it is the study of economic activities.  Economics is the study of an economic activities related to human life.  It is the science which studies human behavior as a relationship between unlimited ends & scare means , which have alternative uses.  Its basic function is to study how people like individuals, households, firms and nation maximize their gains from their limited resources and opportunities.
  3. 3. Concept of Business (Managerial) Economics  Managerial economics refers to the application of economic theory, laws and tools of analysis of decision science to examine how an organization can achieve its objectives most efficiently.  It is taken as an applied micro-economics.  It can be broadly defined as the study of economic theories, logic and tools of economic analysis that are used in the process of business decision making.
  4. 4.  Decision making is an important function of a business executive.  It is a process of selecting a particular course of action from among number of alternative course of action.  If all the factors of production are easily available, then there is no need of decision making.  But, the factors of production are limited and can be used for many purpose and there are unlimited ends of a firm.  So, the question of choice making arises.  Decisions will have to be made in condition of uncertainty and must formulate plans for the future.  In such situation, managerial economics is of considerable help. Role of Managerial Economics in Business Decision Making
  5. 5.  It is necessary for the firm to study the internal & external factors in order to make effective business decisions.  The internal & external factors create risk & uncertainties in the decision making process.  The firm has to implement future plans by establishing relationship between economic variables like:  Demand & its Determinants  Cost & its determinants  Profit & its determinants.  Hence, managerial economics helps in estimating economic relationship between different economic variables for better decision making process. 1. Estimating Economic Relationship
  6. 6.  Prediction of economic quantities implies the calculation of the values of economic variables of the firm.  With the help of various mathematical & statistical methods, the firm can forecast various economic variables  E.g. profit , price, demand etc.  For doing such forecasting activities managerial economics plays an vital role. 2. Predicting economic quantities
  7. 7.  The importance of managerial economics lies not only in solving the problems of the firm but it is also related to the study of environmental factors.  External factors includes like political factors, sociocultural factors, environmental factors etc. have deep effect on the firm’s decision making process.  Firm has to formulate plans on the basis of these external factors.  Hence Managerial economics helps to generate decisions by making these external factors favourable to the firm. 3. Helpful in understanding external factors
  8. 8.  Managerial economics help the firm to establish economic relationship between variables & forecast the values of these variables through mathematical & statistical techniques.  The firm formulates business policies on the basis of predicted economic quantities.  In this way managerial economics serves as a basis of business policies of the firms. 4. Basis of business policies
  9. 9. Thank You Prepared By: Raj

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