Managerial Economics introduction

1. UNIT - 1
• Principles of Economics: Ten Principle of Economics
• Fundamental Principles of Managerial Economics -
Incremental Principle, Marginal Principle, Opportunity Cost
Principle, Discounting Principle, Concept of Time Perspective,
Equi-Marginal Principle,
• Utility Analysis, Cardinal Utility and Ordinal Utility, Marginal
Rate of Substitution, Indifference Curve Analysis
• Managerial Economics and its relevance in business decisions:
Rationale of objectives of a firm, Theory of Firm, Constraints
Faced by a Firm

2. WHAT IS ECONOMICS?

3. • Economics was derived from the Greek word
Oikos (house and to manage).
• Thus, economics means to manage household
affairs with limited fund available in the most
economic manner possible.

4. 90% OF OUR DECISION IS
EITHER ABOUT

5. ……………….
OR

9. SCARES
RESOURCES
NEVER ENOUGH

10. Its basic function is to study how people-
individuals, households, firms and nations –
maximize their gains from their limited resources
and opportunities.

11. “An Inquiry into the Nature and
Causes of Wealth of Nations" in 1776

12. Economics is the science of making decisions in
the presence of scarce resources.

13. MICROECONOMICS
Studies individual agents & markets
MACROECONOMICS
Studies entire economy

14. • “Managerial economics is the study of allocation
of resources available to a firm among the
activities of that unit.” -
Hynes
• “Managerial economics is the application of
economic theory and methodology to business
administration practice.”
• -
Pappas and Brigham

15. Features of Managerial Economics
i. Microeconomics character: - Managerial economics is microeconomics
in character because its unit of study is firm. However, it always takes
the help of macroeconomics to understand and adjust to the environment
in which the firm operates.
ii. Choice and Allocation: - Managerial economics is concerned with
decision-making of economic nature. This implies that managerial
economics deals with identification of economic choices and allocation
of scarce resources on the best alternative.
iii. Goal Oriented: - Managerial economics is goal-oriented and
prescriptive. It deals with how decisions should be formulated by
managers to achieve the organizational goals.

16. Features of Managerial Economics (contd.)
iv. Conceptual and Metrical: - A rational/logical application of
quantitative techniques to business decision-making considers hard and
careful thinking about the nature of the particular problem to be solved.
v. Pragmatic: - Managerial economics is more pragmatic than traditional
economics. Hence, it is called applied microeconomics.
vi. Normative: - Normative economics makes value judgments and
prescribes what should be done to solve economic problems.
vii.Multi-disciplinary: - Managerial economics is an integration of
different academic disciplines.
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17. Principles of Managerial Economics
• People face trade offs (Efficiency vs. Equality)
• Opportunity Cost
• Rational people think at margin
• Principle of marginality
• Marginal and Incremental Principle
• Equi-marginal Principle
• People responds to incentive
• Trade can make everyone better off

18. • Time Perspective Principle
• Discounting Principle

19. Microeconomics Applied to Operational Issues:
a) Choice of business and the nature of products, that is, what to produce,
b) Choice of size of the firm, that is, how much to produce,
c) Choice of technology, that is, choosing the factor-combination
(technique of production)
d) Choice of price, that is, how to price the commodity,
e) How to promote sales,
f) How to face competition,
g) How to decide on new investments,
h) How to manage profit and capital,
i) How to manage an inventory, that is, stock of both finished goods and
raw materials.
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20. THANK YOU!!!
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