Managerial economics applies economic logic and theories to help managers make rational decisions and solve business problems. It uses microeconomic theories like demand theory, production theory, and pricing theory to address internal issues like production levels, pricing, and investment. Macroeconomic factors like GDP, interest rates, exchange rates, and government policies also impact businesses. Managerial economics equips managers to optimize the allocation of limited resources and maximize profits in complex business environments.

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