Managerial Economics

Introduction to Managerial Economics
BEDADURI RAMAMURTHY, Associate Professor, MBA, GVIC-Madanapali. Brmurthy.mba@gmail.com
Managerial Economics
1. Economics
The earlier term for economics was Political economy; it is adopted from the French
mercantilist usage of economic Politique. This word was extending to the ancient Greek word
economy for hose hold management to the national relation as Public administration of the
affairs of the state. Economics is the Regular usage concepts to utilizing day to day required
activates to full fill availability of resources, for utilizing this resources different aspects based
on requirement and scarcity of resources. Money is the one of the resources, we are using regular
requirement in different aspects but it is not available large quantity. Available money is using
different requirements like needs fulfillment, safety requirements and other requirements.
Economics as the “science of wealth”
There are variety of modern definitions are there in economic concept.
The Father of Economics (1776) defined “Economics as the study of nature and causes
of the wealth of nation”
Adam Smith
Adam Smith is given the priority for wealth of nation and commodity of labor. The human
resources is not sufficient at all nations equally it is defer from one nation to other nation. The
Adam Smith is given the description of the scarcity of the Human resources and unsuitable of the
Productivity in production he is suggested to the Division of the labor, it is supporting to the
Maximum productivity and Specialized Skills of the labor and Suitable Price of the Labor work.
This method is helpful to the manufacturing units to produce maximum product and utilization of
the scarcity of resources. For utilizing scarcity of resources and Delivering maximum Products is
helpful to the Nation development.

“Economic is a study of man’s action in the ordering business life it enquiry how he
gets his income and how he use it”
19 century Dr Alfred Marshall
One side of study of wealth and another side study of men Promoting human life but not
wealth
“Economics as the science which studies human behavior as a relationship between
ends and scarce menace which have alternative uses”
Prof Lionel Robins defined
Robin son was indenting human behavior in bellow ways.
1. Unlimited wants
2. Scarce resources
3. Alternative uses
4. Choice
People are engaging different occupations it is depending on the Resources availability. If the
resources are more utilization is there the nation is economically developing. At the time of
resources utilization employment opportunity is created. The people are earning money through
employment it is affected to rise per capital income and rich economic status. If don’t have
employment opportunity it effected low per capital income.
The economic development was stated in long period, human being requirement and
satisfactions based on grownup continually. This development factors needs or wants growth,
resources utilization, economic status build through wealth or income and equilibrium, Based on
economy developing continuously all over the world.
The economic is combination of two branches, micro economics and macro economics.
1. Micro Economics
Micro Economic concept is of the economic concept. It deals with economic activities on
Sigel factor like individual person, one company, one activity and one product, one industry. It

explains the production of the product, efficiency of the resources usage ext... This is describes
to the Product demand, Price, cost analysis, profit and welfare. It helps to the managers to taking
decisions.
2. Macro Economics
Macro Economics is the part of economy it deals group of activities like Industry, All
employs, all citizens’ National income, aggregate demand, price level and Employment. Macro
economic analysis study is execution of economic Policies by the government like industrial
policies, budgetary policies ext…
1.2 Management
Management is functioning with economic activities related concepts. It is functioning
profit motives to maximizing Profit and minimizing Expenditure through Management Functions
like Planning, Organizing, staffing, communicating and reporting. These are the functions to help
to managing effectively.
“Management may be broadly defined as the art of applying the economic principles
that underline the control of men and material in the enterprise under consideration”
Kimball
According to Kimball every enterprise has a specific consideration, it fulfillment all
managers are functioning different rolls. Every manager Prefer their economic activities to the
minimum resources to produce maximum productions, based on that Men and material are using
required resources. Efficient managers are direct the all resources such as men, materials,
machinery, money and technology. These are all affected to the firm productivity.
Manager is working targeted and result oriented. It is affected to the firm growth in
different aspects. Task is build by the manager periodically and activities basis, it is maximize
the profit of the firm and minimize the cost of the resources.

1.3 Managerial economics
Managerial Economics is combination of application in to Management and Economic
Principles and Practices. Individual Applications are supporting to the Effective Monitoring and
Non Monitoring Application conceptual Decision making for Managers or Economist.
Managerial Economic is dealing with the organizational economic activities relating to the Firm.
Norman F. Dufty Opinion Managerial Economics is a part of Economics known as the theory of
firm which can be helpful to the business decision. The managerial economic is help full to the
managers decision making within firm activities like operational cost decision, input output
decisions. It is given optimal solution to the economic behavioral of the firm, to take decision in
firm economic activities. Different Economist and Management Experts are given Deferent
Managerial Economics Definitions.
Definition of managerial economics
Managerial economics was a one of the major roll concept in firm economical concept
and individual economic concepts, different authors are defined differently. Basically managerial
economic Theories and tools are applied economic concepts in business decisions.
“The integration of economic theory with business Practice for the purpose of
facilitating decision-making and forward planning by management”
Spacer & Siegel man
“The application of economic theory and Methodology to business administration practice”
Bring ham and Pappas
“Managerial Economics consist of the use of economic tools to analyze business situations”
Mc Nair and Meriam
“Managerial Economics is to represents economic analysis how can use in formulating
business polices”
Prof. joel Dean

Observing the above definition we identifying below things
 Minimizing cost or maximizing Production and Productivity
 Facilitates forward Planning
 Understand and Analyses the Problems of Business Decision making in management
and administration
The managerial economics deals only for Micro economic activity, for facilitating to the
manager practices. Managerial economic is an application of economic concepts it help full to
the manager to apply different aspects in different ways to maximizing productivity. It is helpful
to Cost estimation, production estimation and Price estimation. Managerial economy it a theory
oriented concepts to analyzing human being needs and wants and estimation of demand and
market structure. It is facilitating to the manager to take decision in forecasting, optimization,
opportunity cost and discounting and fixing the Product prices. It is helpful to build Production
planning and resources utilization and decision making.
Objectives of Managerial Economic Concept
 To integrate Economic theory with business Applications
 To Apply Economic Concepts for solving Business Problems
 To take decision for Effective utilization of resources
 To minimize the Economical Risk and Uncertainty
 To maximize Profit and wealth of the firm
 To take Firm development Plans
1.4 Nature of Managerial Economics
Close to Micro Economics
Managerial Economic is function to the Managers decision making in economic
operations. The manger is taking decision to reach the firm goals. All the firm managers prefer to
analyze and taking decision from firm economic operations based on requirement like
departmental or activity based or variable base. This type of economic activity is relating to the

micro economics. Based on this managerial economics is dealing to the micro Economic
concepts.
Goal Oriented Activities
Managers’ Primary activity is to preparing different plans like financial Plan, Production Plan
Ext... These Plans are linkage with the economic activity and relating to the firm requirements, to
reach firm goals. This Plans, Sub Plans and activities framed by the goal oriented. This is helpful
to the firm to creating wealth and Profit it is a root for achieving firm results and helpful to the
managers. The mangers Plans is
Applied in Conceptual in Nature
Managerial Economics is an economic concept it deals individual activity or firm, this is
helpful to the mangers to analyzing the business Problems to applying it. Managerial concepts to
applying business activities in demand estimation decision, pricing decisions, sales estimation
ext… it is helpful to the manager to taking decisions in critical and natural business problems.
Evaluate each alternative
Managers activities major factor s decision making, it is help full to the firm growth. The
decision making is involved in different aspects like Problem Solving, Goal setting, Plans
Preparations, Controlling operations and new product development. All the concepts is inbuilt
to the Alternative formulation and evaluation, it is the main concept to deciding managers
activity and firm growth. The evaluation of alternative is the key point to choose Firm
beneficial factors like Maximization of Profit, Productivity and Minimization of Cost or
resources wastage.
Assumption and Limitation
Managerial economics is applying some assumptions and limitations. Mostly the firms
sales maximization theory are following to the Assumptions like sales Promotional activities. it
is applicable limited period or selected segment only. The buyers purchased or not we are not
confident exactly before implementing the sales Promotional activity. It is sales manager’s

assuming sales through sales promotional activity. The sales Promotional activity is applicable to
the economic operations Particular brand or Product or firm.
Normative Statement
Managerial economics is a normative statement. It is concerned with what management
should do under a particular event, like product sales, product production activity, product
research, ext… the managerial economics supporting to the goal setting and how to achieve goal
planning details. More helpful to the managers to preparing future plans, production policy, price
policy’s and decision making based on resources availability to aching firm goals.
Backdrop to Macro Economics
Managerial Economics Deals with Individual Factors Only like Product, Department,
Firm, Customer or Consumer, Segmentations of the Market only. Managers never Applied
managerial Economics theories and Techniques for group of activities or Industrial Decisions.
1.5 Scope of Managerial Economics
The Scope of managerial Economics means area of application of Business Practices.
The managerial Economics is having a wider range of Business Applications for taking
Economic decisions. The manager’s decisions Relating to the Economical and Non Economical
business decisions those are supporting to Firm development. The managerial Economic
Decisions are supporting to rising profits or wealth of the organizations.
The managerial Economics covering Business application theories and tools areas are
relating to Micro Economic decisions and Macro Economic decision. M.V. Praeen Openion the
managers’ economic decisions broadly classified two disciplines, like Internal and External
areas.
The Internal Applications: - Demand Analysis, Cost Analysis, Pricing Decision, Profit
Decision, Capital Decision, Production Analysis, Inventory Management Decision, and Product
Promotion Decision.

The External Decision: - Analysis of market structure, Purchasing power, developing
financial institution, foreign trade, Capital market performance, Economic Policies
Demand Analysis
The consumer’s consumption of the product and services are changing continuously for
market conditions and other factors like consumers living status ext. in consumers product
consumptions are changing when the consumers test changes. If the product price changing to
the proprietor or seller ultimately the product sales are changes are occurred, this kind of changes
are estimated by the Manager how much changes are occurred. Future sales are estimated by the
manger at specific period through with the help of managerial economic tools. The managerial
economics is helpful to the manager to prepare the future plans which are helpful to the
economic benefit of the firm.
Cost Analysis
Cost analysis is one of the areas of studding by the managerial economics. This cost
analysis is relating to the input and output resources analysis for the economical benefit of the
firm. The firm is preparing plans and policies for Lon-term orientations, this implementations
and success are depending on the best cost practices. The firm cost and product cost factor plays
roll of the market success of the firm. The Successful firm manager practicing best Cost
leadership in the market, through effective analysis of different types of cost like fixed cost,
variable cost, marginal cost Ext. the best cost leadership helpful to maintain best market share of
the firm.
Pricing Decision
The pricing concept is economic application; it’s more helpful to manager’s success
through selling of more number of quantities. The managers are taken by pricing decision by the
consideration of objectives of the firm, Market competitive conditions and production cost. The
manager’s primarily identifying basic concept of total production cost of the product or unit
price. The farm basic objectives of the transactions are different one to other like some firms are
working non profit motive and another firm working profit motive. The profit motive form fixing
their product price more than production cost as much as possible of the market. Market

computation factors fixing their product price differently one market to other market. Most of the
managers are following cost plus pricing method.
Profit Planning Decision
According to Marshall Profit is the minimum reward to the entrepreneurs to keep a given
amount of capital invested in the enterprise. Managers are continuously trying to maximize profit
of the firm through study profit theories. Business practices making of profit is a critical to
maintain continues, it is uncertainty factors are affected like internal and external factors. The
managers are continuously struggling to rising profit of the firm, making different kinds of
policies and planning’s. Mostly profit generate through increasing income and reducing
Expenditure. The manager’s continuously analyzing their practices through income generated
operations and expenditures transactions like operational expenditures and non operational
expenditures.
Capital Decision
The firm using different kinds of scarcity of resources, capital is the first scarcities of the
resources in all firms. Capital decisions are relating to broadly two concepts like capital
mobilization and allocations of long term funds. The manager took decision to mobilization of
capital at minimum cost and allocating mobilized capital in best sources to maximizing return at
available sources. The capital decisions are given to the priority of rate of return, Profitability
index and pay-back period for effective allocations. These are helpful to the managers’ efficiency
of the economical operational decisions and practices. Mangers are taken decisions to effective
utilization of capital to achieving maximum profit in their business practices.
Production Analysis
Production is a process of transforming input to output involving different stages based
on requirements. Output is depending on the input resources and its combinations of the
production process. The combinations of input resource are expensive factor comparing to
different from one resource to other resources. In economic concerns input resources are scarcity
of the operations. The manager’s decisions relating to achieving the required output for

minimum combinations of input with utilizing minimum cost of input resources. The managers
take decisions for make or buy decision for cost minimizations.
Inventory Management Decision
Inventory means stock of materials; it plays major roll to the production operations and
customer satisfactions, these requirement more inventory required but it’s expensive like Plant
maintenance cost, insurance cost, loss of inventory life period ext... Effective managers
continuously excursing to reducing inventory expansive, reducing the production cyclical time,
lead time achievements through required inventory management. The inventory manager had
taken decision proper stock management at different levels or quality of inputs through inventory
management techniques.
Promotional Decision
Present day’s product promotions are playing major role in the market and its determent
the product sales at certain level. Most of the firms are using different kinds of advertising
channels based on targeted segmentation and customers. Product promotion managers excising
continuously or periodically to the advertising operations, it is a economic operations. The
managers had taken decisions for single product promotions or multiple product promotions for
reducing promotional expenditures. Promotional channels cost also changing based on life
period. The effective managers have taken decision to maximizing sales level and minimizing
promotional cost through studying graphical and mathematical theories and techniques.
Analysis of Market structure
The market analysis is more helpful to the managers to achieving economical objectives
of the firm. In this activity is helpful to the managers to take decisions relating to the product
price fixation, identifying the product life cycle and competitors’ performance in the market. The
product price determined by the sales of the quantity and profit, these decisions are taken by the
compotators performance for earning maximum profit. The product sales targeted segments are
changing periodically based on the product life cycle. The firm manager taken price decision and
delivering products price discrimination based on the market conditions.

1.6 Managerial Economics in Other Disciplines
Economic concept is involving different aspects within the firm and outside of the firm
what are factors effected in business. The Managerial economics have a wide range of
relationship in different disciplines it helps to the managers to take economical decision to reach
organizational goals. Different authors are giving different disciplines, most of the authors are
defined by the managerial economics is relation with below subjects.
Management
The management functions are help full to the firm internal operations and external
operations. Managerial economics is performing management functions to fulfilling the
organization objective. According to R.C. Davis describes four management functions- Planning,
Organizing, Executing, and controlling. These are helpful to the manager to manage firm
economic activities.
Planning is a systematic way to describe before acting what we do, how to do and whom
to do. It is helpful for firm Economic Plan; Production Plan Ext. Organizing is the Task being
interaction between two or more persons or departments. The task was interacting to the
Production department and sales department. Decision Making is choosing best alternative in
scarcity of resources. It is helpful to the economist for producing maximum output with
minimum input. Executing Controlling is the economic activities; the managerial economics is
controlling different economic activity based on requirements like Product cost, input variable
cos.
Accounting
Managerial economic is relation to the accounting concept. The objective of the
accounting is recording all business transactions through classification and interpretation in
accounting manner. This recorded data is helpful to the economist to take decision in demand
economic concepts like cost, revenue, receivable, payable, Profit and loss statement or concept.
It helpful to the Managers for analyzing Firm Accounting Operational cost, Trading cost, total
revenue, and average revenue and Marginal Revenue.
Economics

Economic concept is relation of the all economic activities in the firm or nation. This
concept is classified to two ways based on economic concepts like Micro economics and macro
economics. The micro economics is dealing to the Single Employee, Product, unit, firm
economic activities. Macro economics is dealing to Group of Employs units, industry and
national Economic factor. The managerial economic is activities are relating to the micro
economic concepts so managerial economic is relation to the economic. The managerial
economic is a one of the branch of the economic concept.
Statistics
The managerial economist is using different statistical tolls to taking economical
decisions. It is helpful to the firm success operations. Generally usage statistical toll is average,
time series, correlation and regression. The Average concept is helpful to analyzing average cost,
average revenue and average Production Ext… The time series is helpful to the sales analysis in
different time period or individual Product. This is Helpful for analysis and estimation of
periodically Availability of input variables. Correlation is describing the relation between two
or more quantitative variables. The economist is mostly using product demand and Price relation.
Regression was first used by Sir Francis Galton in 1877; it is used for the economist identifying
the functional relationship between the two independent and dependent variable. It is helpful for
measuring proportion of effected in performance depending on one variable two others
operation.
Operation Research
Operation research is helpful to the Economist to reducing the Expenditure and
transactions in the firm operation. The operation research tools are a more helpful to the
economist or mangers. The operation research tolls are the Transportations Model, Linear
Programming Model, game theory, inventory model and transportation models are helpful to
solving problems.
Psychology
Psychology is the science of mind. It is functioning differently based on the factor. The
economist is identifying the Human behavior status in the economic operations relating to
Investors, buyers, sellers and employees. Manger is identifying customer buying status or

changes impact on reducing some portion of the Price. The Product Price impacts are estimating
through human behavior Psychology.
Sociology
Sociology is help to identifying the economic aspects of the Society. The firm manger is
identifying the human wants and delivered the goods from society. The firm manager is given
the priority for the maximization of the sales and identifying society priorities like festivals,
marriages and celebrations days. These are help for economist to deliver or Planning this
Priorities.
1.8 Economic Principles for Manager
The manager is setting organization objectives and goals to developing organization Profit.
The objectives are maximizing wealth of the firm. He is following to the some principles to
fulfilling the firm goals and objectives. The manger is using managerial economic principle it
have wide range of scope in the firm economic activities.
 Analysis of Product Scheduling
The Manager is regularly analyzing product or services demand; it is existing or new
product or services. The manger is analyzing the different concepts, what or the demand
determinants. This type of analysis is helpful to the managers to deliver the Product are services
required quantity and maximize the firm wealth.
Estimation of Product Demand
Managerial Economic concept is Helpful to the mangers to finding the Product or services
demand estimation in particular duration of the time and Place. Firm manager estimate the
demand through using quantitative or qualitative tolls, how much demand is changing particular
concept. It helps to firm economic operations are expansion or reduction, if firm Product or
services have 20% of the demand increases the firm operations are increasing simultaneously

required activities or 20% of the demand reducing the operations or reducing simultaneously it
reducing Economic required activities.
 Planning of production Schedule
The Production manager is functioning to
through Production Scheduling. This schedule is
preparing input and processing function of the
Production. Generally the production scheduling
is taken three ways there are It is Pre production
scheduling, Post Production scheduling and
Situational Production scheduling.
Pre-Production scheduling is taken by the
before production, it is relating to Input material or resources Procurement like Men, material,
machinery, money and technology.
Situational Production Scheduling is taken by the Production Process. If the Production time
Electric Power is not available to go for other way like generating Power with help of Fuel and
Generator. Suitable Employee or employs are not available Particular day or month, the
Production manager to complete the Production task through over time duty or temporary
recruitment or assigning task others.
Post-Production scheduling operation is after Production. To delivering services warranty
and guaranty claims.
 Determined the Input- output Decision
The production manager is functioning continuously to Produce Maximum Productivity
through Minimum Input. The input factors are the Men, material, machinery and Money, this are
not available required quantities at all time and all Places. To determined the out-put decision on
Available inputs. Manager need to produce market required quantity or demand of products, to
take decision based on availability of input resources. To take the Precautions on Production
Plan to reach required output. Generally soft drink Products demand is more in summer days.
Scope of
Managere
al
Economics
Estmation
of Product
Demand
Analysis
of
Product
demand
Planning
of
productio
n
Schedule
Desiding
The Input
Decisition
Analysis of
Cost of
Productio
n
Estimation
of Cost of
Productio
n
Detarmina
tion of
Output
Achiving
Econamic
Of
Scale
Analysis of
Pice of
Product
Analysis of
Market
Structure
Firm Plan

The production manager has taken to decision to using availability of Variable and Fixed input
resources and deliver the Products at required portion of demand.
 Analysis of Cost of Production
The firm is using different types of inputs like variable inputs and fixed inputs in production
Process. The input variable costs are changing one place to other place. If we producing more
Products in cretin level no need to change fixed variable. Variable inputs are required to change
required level of out-put. If firm is producing below aggregated quantity of Products, it is raising
fixed cost. This fixed cost is affected to the cost of Production. The effective Production manger
is analyzing the cost of production and estimating the suitable level of production with fixed and
variable cost.
 Analysis of Price of Product
Present day firms are facing huge Completion to attracting customers and selling Product or
Services. The substitution Products Price is determining the Product sales. One company Product
Price is chaining it is effected for substitute Product sales performance. The Price is given the
chance to customer to buy or not. Most of the firms are Playing Pricing Strategies and
Promotional tools for selling Products.
 Analysis of Market Structure
The manger is analyzing completion and customer satisfaction in the market. The Market
structure is different from one to another like Place, Product and Services. The market structure
is changing one market other Market like Monopoly and duopoly. The analysis of market
structure of the competition is helpful to the manager to create the best wealth of the firm. is
condition of the Product or services
 Firm Plan
Manager is preparing to the firm Plans it is consisting to the different aspects Like
Marketing, Finance, Production Ext... Firm plans are based on requirements like Financial Plan,
Production Plan, Human resource Plan, Strategic Plan ext... This are helps to the maximization
of Productivity. Financial plan deals income and expenditure hear expenditures are capital

expenditure, revenue and other expenditure. The capital Plan is help to manger to reducing
expenditure. It is helpful to the best productivity in minimum investment.
Estimation and analysis of firm Products demand in current market condensations and future
market conditions. Build suitable plan for Production operations to reach determined output.
Manger is deciding the combination of the available input resources like Land, Labor and
Materials. Estimating best opportunity cost in suitable alternatives. Continuously analyzing the
market structure it helps to estimate Profit and Product price.
Functions and Responsibilities of Managerial Economist
Kj Alexander and GK Alexander Opinion every organization facing different Economical
transactions related problems continuously. The firm overcoming this kind of problems through
managerial economist advises only, the economist playing bellow concepts related analyst
functions.
 Sales Forecasting
 Market research
 Economic Analysis of Competing Companies
 Pricing Problem of industries
 Capital Projects
 Production Scheduling
 Investment Analysis
 Forecasting
 Advice on trade and Public relation
 Advice on foreign exchange Management
 Advice on Primary Commodity
 Economic analysis of Agricultural
 Analysis of under development economics
 Environmental forecasting

1.5.3 Responsibilities of managerial economics
To bring Reasonable profit to the company
To make accurate forecast
To establish and maintain contact with individual and data sources.
To keep the management informed of all the possible economic trends
To prepare speeches for business executives
To participate in public debates
To earn full status in the business team
1.5.4 Characteristics of Managerial Economist
Micro economic in character
Body Economic Character
Practical oriented economist
Positive economist
Macro economist
Management oriented
Reference
1. M.V.Praveen, Managerial Economics, Module I &II, University Calicut School of
Distance Education.
2. Dwivedi. D. N. (2002), Managerial Economics, Sixth edition, Vikas publishing House
LTD, New Delhi.
3. Mithani D.M., Managerial Economics, Himalaya Publishing House. Mumbai.

Managerial Economics

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