Managerial economics applies economic theories and methodologies to business decision-making, focusing on problem-solving and the integration of economic theory with business practice. Its scope includes demand analysis, production planning, pricing strategies, and market forecasting, supporting managers in optimizing resources and pursuing profit maximization. Business economists help organizations navigate complexities in decision-making, assess risks, and formulate policies to enhance overall efficiency and competitive advantage.

1. Managerial
Economics

2. Definition
 Managerial economics is the discipline that deals
with the application of economic concepts, theories
and methodologies to the practical problems of
businesses/firms in order to formulate rational
managerial decisions for solving those problems.
 “Managerial economics is concerned with the
application of economic concepts and economics to
the problems of formulating rational decision
making.” -Mansfield

3. Definition
 “Managerial Economics is the integration of
economic theory with business practice for the
purpose of facilitating decision making and forward
planning by management.” –Spencer and Seigelman
 “A fundamental academic subject which seeks to
understand and analyze the problems of business
decision making.” – D.C. Hague

4. Nature of Managerial Economics
 It is essentially microeconomic in nature.
 It is pragmatic.
 It belongs to normative economics, i.e. besides being
descriptive, it is also prescriptive.
 It is conceptual in nature.
 It utilizes some theories of macroeconomics.
 It is problem solving in nature.
 It is multidisciplinary.

5. Scope of Managerial Economics
 Estimation of product demand
 Analysis of product demand
 Planning of production schedule
 Deciding the input combination
 Estimation of cost of product
 Analysis of cost of product
 Achieving economies of scale.
 Determination of price of product
 Analysis of price of product

6. Scope of Managerial Economics
 Analysis of market structures
 Profit estimation and planning
 Planning and control of capital expenditure

7. Significance of Managerial Economics
1. Decision Support: Managerial economics provides a systematic
framework for decision-making. Managers often face complex choices
regarding production, pricing, resource allocation, and investment. By
employing economic principles, managers can make informed decisions
that align with the organization’s goals.
2. Optimization of Resources: A fundamental aspect of managerial
economics is the optimization of resources. Through cost-benefit analysis
and marginal analysis, managers can identify the most efficient allocation
of resources, maximizing output while minimizing costs.
3. Profit Maximization: Managerial economics helps businesses
pursue profit maximization by analyzing market conditions, determining
optimal pricing strategies, and identifying cost-effective production
methods. This is crucial for the long-term sustainability and growth of the
organization.

8. Significance of Managerial Economics
4. Market Analysis and Forecasting: Managers use managerial
economics to analyze market trends, understand consumer behavior,
and forecast demand for products or services. This information is
essential for formulating effective marketing strategies and staying
competitive in the market.
5. Risk Management: In a dynamic business environment, managers
face uncertainties and risks. Managerial economics assists in assessing
and managing risks by incorporating risk analysis and decision-making
under uncertainty into the decision-making process.
6. Policy Formulation: Managerial economics contributes to the
formulation of organizational policies by providing insights into the
economic implications of different policy choices. This includes pricing
policies, investment policies, and strategies for entering new markets.

9. Significance of Managerial Economics
7. Efficiency Improvement: By focusing on optimization and resource
allocation, managerial economics helps improve overall efficiency within
an organization. Identifying and addressing inefficiencies leads to cost
reduction and improved productivity.
8. Strategic Planning: Managerial economics plays a crucial role in
strategic planning. Managers use economic analysis to evaluate the long-
term impact of various decisions on the organization’s competitiveness
and sustainability, considering factors such as market trends,
technological advancements, and regulatory changes.
9. Understanding External Environment: Managerial economics
helps managers understand and respond to changes in the external
economic environment. Awareness of factors like inflation rates, interest
rates, and global economic trends enables organizations to adapt to
external conditions.

10. Significance of Managerial Economics
10. Performance Evaluation: Managerial economics
provides tools for evaluating the performance of different
business units or projects. Performance metrics derived from
economic analysis help in assessing the success of strategies
and initiatives.
11. Resource Utilization in Multinational
Companies: In the context of multinational companies,
managerial economics aids in optimizing resource utilization
across different countries, considering factors like exchange
rates, trade policies, and international market conditions.

11. Micro and Macro economics
Micro Macro
1. It studies the individual unit. 1. It studies the whole economy or large
group.
2. It provides information relating to the
individual prices, individual consumption
and production.
2. It provides the information relating to
National Income, total output, total
consumption and general price level.
3. Its analysis is simple. 3. Its analysis is complex due to the study
of large groups.
4. It focus on price analysis. 4. It focus on income analysis.
5. Its central problem is price
determination and allocation of resources.
5. Its central problem is determination of
level of income and employment.

12. Role of Economics in Business Decision making
Business economists serves as indispensable assets to
organizations, facilitating effective decision-making and
business planning. Their multifaceted roles encompass
identifying problems, providing a quantitative foundation
for decision-making, offering advisory services, and
enhancing awareness of the business environment. These
roles are elaborated below:
1. Identifying Business Problems
A business economist’s role begins with identifying
problems. In the evolving business landscape, companies
grapple with many issues that can hinder their growth and
stability.

13. Role of Economics in Business Decision making
These problems might manifest as labour disputes, pricing
challenges, or regulatory hurdles. The business economist
must spot these issues, dive deep into their root causes, and
meticulously assess their impacts on the company’s
operations. Once armed with a comprehensive
understanding, they can propose well-reasoned alternatives
and corrective measures for management to consider.
Business economists are tasked with designing courses of
action that will rectify existing issues and help the company
maintain and improve its systems. This proactive approach
ensures businesses stay agile and adaptable in a constantly
changing market.

14. Role of Economics in Business Decision making
2. Providing a Quantitative Foundation
Experience and expertise converge in business economics to
deliver a solid quantitative foundation for decision-making and
forward planning. Business economists leverage their vast
knowledge to evaluate a wide array of factors that affect a
controllable and uncontrollable business. This includes examining
production, marketing strategies, and organisational models. The
ultimate goal is to devise management techniques to boost
production efficiency while reducing operating costs. Quantitative
analysis is a cornerstone of this process, enabling business
economists to present management with data-driven insights. By
providing empirical evidence and numerical assessments, they
equip organisations with the tools to make well-informed
decisions, set realistic goals, and plan for a successful future.

15. Role of Economics in Business Decision making
 3. Advisory to the Company
Business economists don many hats, one of which is that of an
advisor. Their role extends beyond economic matters to
encompass a broad spectrum of issues. Drawing from their wealth
of experience, business economists offer guidance on critical
aspects of a business’s operations. This includes advising on
investment strategies, sales promotion tactics, competition
analysis, financial health evaluation, labour relations
management, and government policy compliance. By their
expertise, business economists play a vital role in helping
organisations navigate a complex business landscape. They
provide essential insights and suggestions, empowering business
leaders to make decisions that are not only financially sound but
also aligned with the broader interests of the company.

16. Role of Economics in Business Decision making
4. Knowledge About the Environment Factors
For a business to thrive, it is essential to comprehend and adapt to its
environment. Business economists bridge the company and its
surroundings, ensuring that businesses remain resilient and
responsive. Understanding the environment involves scrutinising
both external and internal factors. On one hand, some external forces
and conditions lie beyond an organisation’s control. These can
include economic trends, political developments, and regulatory
changes. A business economist must know these external factors to
help the company prepare for potential challenges and seize
opportunities. On the other hand, internal factors firmly within the
company’s domain influence operations. These can encompass the
company’s internal structure, workforce, and operational processes.
An adept business economist is well-versed in optimising these
internal factors to minimise costs and enhance efficiency.