Managerial economics

1. Managerial Economics
Nature and Scope of Managerial
Economics

2. Economics
• The word economics derived from “Oikonomus”
• Oiko stands for Household, Nomus stands for
Rules, Norms and Regulation.
• Thus Economics refers to simple norms, rules and
regulation used to manage the funds in a
household.
• This phenomena utilized by Banks, Firms,
Industries and Nation as a whole to manage the
limited resources in the best way.

3. For Example
• My monthly income is Rs.35000 which is limited resource.
• From limited income I have to managed my expenses (e.g. mobile bill,
water bill, personal expenses etc.) and savings (e.g. Bank deposit, Life
Insurance etc.)
• So, here my resources are limited but use of the resources are unlimited
(that is expenses and savings).
• Now, here come the role of economist that how I will manage limited
resources in the best way so that I can maximize my satisfaction from the
limited resources.
• So finally Economics means “Study of scarcity and Choice”.
• Economics is to study how people – Individuals, households, firms and
nations maximize their gains from their limited resources and
opportunities.
• Economics is a social science, which studies human behavior in relation to
optimizing allocation of available resources to achieve the given ends.

4. WHY STUDY MANAGERIAL
ECONOMICS ????
• Growing complexity of business decision
making process.
• Due to this, increasing use of economic logic,
concepts, theories and tools of economic
analysis in the process of business decision
making.
• Increase in demand for professionally trained
managerial power.

5. WHAT IS MANAGERIAL ECONOMICS
• Managerial economics is that part of
economic knowledge, logic, theories and
analytical tools that are used for rational
business decision making and optimal solution
to business problem.

6. MICRO ECONOMICS
• It is applied to internal issues.
• Internal issues include all those problems which arise within the business
organization.
• These problems are controllable by nature.
• Some of the basic internal issues are:
⮚ What to produce
⮚ How much to produce
⮚ Choice of technology
⮚ How to price the commodity
⮚ How to promote sales
⮚ How to face price competition
⮚ How to decide on new investment
⮚ How to manage profit and capital
⮚ How to manage an inventory

7. MICRO ECONOMICS THEORIES
• THEORY OF DEMAND:
✔ This theory deals with consumers’ behavior
✔ It answers questions such as:
❖How do consumer decide whether or not to buy a
commodity?
❖What quantity of commodity should be purchased?
❖When should they stop to consuming a commodity?
❖How do the consumers’ behave when price of the
commodity, their tastes and preferences change?

8. ….Continued
• THEORY OF PRODUCTION AND PRODUCTION
DECISION:
✔This theory explains relationship between inputs
and output.
✔Under what conditions cost increase or decrease.
✔What is the change in total output when unit of
one factor (Input) is increased or decreased.
✔How output can be maximize from given
resources.

9. …Continued
• PRICING THEORY
✔This theory explained how price is determined
under different types of market conditions.
✔Under what condition is price discrimination is
feasible.
✔How advertising can be helpful in expanding
sales.

10. …Continued
• PROFIT ANALYSIS AND PROFIT
MANAGEMENT:
✔This theory guides the firm in:
❖Measurement and management of profit.
❖In making allowances for the risk premium.
❖In calculating the pure return on capital.
❖For future profit planning.

11. …Continued
• THEORY OF CAPITAL AND INVESTMENT
DECISIONS:
✔This theory helps in making appropriate
investment decisions.
✔Choice of projects
✔Maintaining the capital
✔Capital budgeting.

12. MACRO ECONOMICS
• Macro economics takes into consideration all the
external factors which affects the working of a firm.
• These external factors are :- economic factors, social
factors and political factors.
• These factors are uncontrollable in nature.
• In Managerial Economics we will be only concerned
about Economic factors which affects a business
environment.

13. MACRO ECONOMIC ISSUES
• ISSUES RELATED TO MACRO ECONOMICS
TRENDS IN THE ECONOMY:
❑These trends are affected by:
❖Level of GDP
❖Investment climate
❖Trends in National Output and employment
❖Price trends

14. ….Continued
• ISSUE RELATED TO FOREIGN TRADE:
❑Before taking any strategic decision,
managers also want to know:
✔Trends in International trade
✔Prices
✔Exchange rates
✔Prospects in the International Market

15. …Continued
• ISSUES RELATED TO GOVERNMENT POLICIES:
❑Government policies designed to control and
regulate economic activities of the private
business affect the functioning of the private
business undertaking.
❑Thus the managers should be fully aware of the
aspirations of the people and should give such
factors due considerations.

16. THANK YOU