This document provides an overview of managerial economics and its key concepts. It begins with definitions of managerial economics as the application of economic theory and tools of analysis to help organizations achieve objectives efficiently. It describes the nature, scope, characteristics, and significance of managerial economics, as well as its relationship to other fields like economics, operations research, and statistics. The document then covers fundamental concepts in managerial economics including incremental reasoning, marginal analysis, consumer behavior theory, and theories of the firm. It emphasizes that managerial economics uses economic analysis to help managers make optimal decisions.
1) Managerial economics is the application of economic theory to solve business problems and make optimal decisions considering the business environment.
2) It uses microeconomic and macroeconomic concepts to analyze demand, costs, production, pricing, profits, and capital allocation to help managers with decision making.
3) The goal is to prescribe solutions to common business problems like demand forecasting, cost analysis, production planning, pricing strategies, and capital budgeting.
1. The document provides an introduction to managerial economics by a professor.
2. It defines key economic terms like microeconomics, macroeconomics, and managerial economics.
3. It outlines the core content of managerial economics including demand analysis, production decisions, cost analysis, and market structures.
This document discusses the key concepts of managerial economics. It begins by defining managerial economics as the integration of business practices and economic principles to help managers make business decisions and strategic planning. The document then covers the scope and objectives of managerial economics, classifying it as a microeconomic discipline focused on optimization of business decisions. It lists several economic tools used in areas like investment, demand, production, and pricing decisions. Finally, it notes that managerial economics is interdisciplinary, utilizing techniques from fields including economics, mathematics, statistics, operations research, and accountancy.
Managerial economics refers to the application of economic theory and tools of decision-making to business management. It helps integrate economics with business practices to facilitate optimal decision-making and planning. Managerial economics draws from microeconomics, macroeconomics, mathematical economics, econometrics, and other business disciplines. It is relevant for production planning, pricing decisions, capacity expansion planning, and human resource management. Managerial economics provides frameworks to analyze demand, costs, and guide profit-oriented decision-making.
This document discusses the scope of managerial economics. It summarizes that microeconomics and macroeconomics are applied to business analysis to understand the business environment and solve practical problems. Microeconomics deals with small economic units like firms and consumers, while macroeconomics examines the entire economy and factors such as business cycles, economic policies, and national income. Managerial economics applies microeconomic and macroeconomic theories to analyze internal operational issues and external environmental issues that businesses face.
Managerial economics is the application of economic theory and methodology to managerial decision making and business problem solving. It helps managers understand market conditions, analyze competitive factors, and predict market behavior to make informed decisions regarding production, pricing, costs, profits, and forward planning. Managerial economics provides analytical tools for evaluating alternatives and minimizing risks to enable efficient resource allocation and optimal business outcomes.
1) Managerial economics is the application of economic theory to solve business problems and make optimal decisions considering the business environment.
2) It uses microeconomic and macroeconomic concepts to analyze demand, costs, production, pricing, profits, and capital allocation to help managers with decision making.
3) The goal is to prescribe solutions to common business problems like demand forecasting, cost analysis, production planning, pricing strategies, and capital budgeting.
1. The document provides an introduction to managerial economics by a professor.
2. It defines key economic terms like microeconomics, macroeconomics, and managerial economics.
3. It outlines the core content of managerial economics including demand analysis, production decisions, cost analysis, and market structures.
This document discusses the key concepts of managerial economics. It begins by defining managerial economics as the integration of business practices and economic principles to help managers make business decisions and strategic planning. The document then covers the scope and objectives of managerial economics, classifying it as a microeconomic discipline focused on optimization of business decisions. It lists several economic tools used in areas like investment, demand, production, and pricing decisions. Finally, it notes that managerial economics is interdisciplinary, utilizing techniques from fields including economics, mathematics, statistics, operations research, and accountancy.
Managerial economics refers to the application of economic theory and tools of decision-making to business management. It helps integrate economics with business practices to facilitate optimal decision-making and planning. Managerial economics draws from microeconomics, macroeconomics, mathematical economics, econometrics, and other business disciplines. It is relevant for production planning, pricing decisions, capacity expansion planning, and human resource management. Managerial economics provides frameworks to analyze demand, costs, and guide profit-oriented decision-making.
This document discusses the scope of managerial economics. It summarizes that microeconomics and macroeconomics are applied to business analysis to understand the business environment and solve practical problems. Microeconomics deals with small economic units like firms and consumers, while macroeconomics examines the entire economy and factors such as business cycles, economic policies, and national income. Managerial economics applies microeconomic and macroeconomic theories to analyze internal operational issues and external environmental issues that businesses face.
Managerial economics is the application of economic theory and methodology to managerial decision making and business problem solving. It helps managers understand market conditions, analyze competitive factors, and predict market behavior to make informed decisions regarding production, pricing, costs, profits, and forward planning. Managerial economics provides analytical tools for evaluating alternatives and minimizing risks to enable efficient resource allocation and optimal business outcomes.
- The document discusses the syllabus for a managerial economics course with 5 units covering topics like general foundations, market structures, economic decision making, national income models, and macroeconomic policies.
- Unit 1 introduces economic approaches and the circular flow of economic activity. It also covers firm objectives, demand analysis, production functions, and cost concepts.
- Other units discuss product and input markets under different structures, capital budgeting techniques, indicators of national income, and the interrelationships between fiscal and monetary policies.
Managerial economics is the application of economic theory and methodology to managerial decision making. It helps managers optimize business behavior and integrate economic theory with business practice to facilitate optimal decision making. Some key concepts in managerial economics include opportunity cost, marginality, production possibility frontier, and discounting principle. Managerial economics uses both microeconomic and macroeconomic analysis to address internal business issues like production, pricing, investment decisions as well as external issues like industry trends and government policies. The goal is to help managers make rational economic choices and maximize profits given scarce resources.
Managerial economics applies economic theory and decision science tools to help organizations achieve their objectives efficiently. It uses microeconomics, macroeconomics, mathematical economics, and econometrics to solve managerial problems and make optimal decisions. The goal is to maximize the value of the firm over time by finding the optimal solutions to managerial problems through the application of economic theory and analysis.
This document provides an overview of Unit 1 of a course on Managerial Economics. It outlines the key learning outcomes which include explaining the meaning, characteristics, scope, and techniques of managerial economics. It also describes how managerial economics can be applied in decision making, marginal analysis, and optimization. Finally, it provides the estimated time required to complete the unit, a content map of the topics to be covered, and a brief introduction to the first topic - the concept of managerial economics.
Managerial economics applies economic theory and tools of analysis to help organizations achieve objectives efficiently. It uses microeconomic and macroeconomic concepts as well as quantitative techniques to solve business problems. Managerial economics aids management decision-making in areas like production, pricing, resources and competition. It provides a framework for determining objectives, identifying alternative solutions, and selecting optimal courses of action. The principles of managerial economics are integral to business decision-making and estimating risk.
Managerial economics is the science of directing scarce resources to manage cost effectively. It uses economic models and theory to analyze business solutions and facilitate decision-making. Some key aspects of managerial economics are that it is concerned with economic decision-making, goal-oriented, pragmatic, both conceptual and quantitative, and provides a link between traditional economics and decision sciences. Managerial economics applies microeconomic theory at the firm level for normative decision-making and concentrates on making economic theory more application-oriented for optimal business problem solutions.
Managerial economics is the application of economic theory and methodology to address practical business problems. It helps managers make decisions regarding demand analysis, cost analysis, pricing, profit management, and capital management. Specifically, it provides frameworks for demand forecasting, cost-output analysis, determining optimal prices and pricing strategies, profit planning and measurement, and evaluating capital investment projects and managing a firm's capital. The goals and objectives of firms include maximizing sales revenue, growth rate, managerial utility, satisfying multiple constituencies, and long-run survival with sufficient market share.
Managerial economics applies microeconomic concepts and analysis to help managers make rational decisions. It uses economic theories to help firms overcome problems and achieve objectives. Managerial economics focuses on demand analysis, supply analysis, cost analysis, pricing decisions, profits, and capital management to inform business analysis and decision making. A key function of managers is decision making, which involves selecting the best alternative to efficiently attain goals like profit maximization. Managerial economics helps reduce uncertainty in decisions by analyzing factors like demand, supply, and the business environment.
Managerial Economics: Concept of Economy, Economics, Microeconomics, Macroeconomics. Nature and Scope of Managerial Economics, Managerial Economics and decision-making Concept of Firm, Market, Objectives of Firm: Profit Maximization Model, Economist Theory of the Firm, Cyert and March’s Behavior Theory, Marris’ Growth Maximisation Model, Baumol’s Static and Dynamic Models, Williamson’s Managerial Discretionary Theory.
Managerial Economics- Introduction,Characteristics and ScopePooja Kadiyan
This document provides an introduction to the scope of managerial economics. It defines managerial economics as the integration of economic theory with business practice to facilitate decision-making. The key areas covered in the scope of managerial economics include microeconomic analysis of the firm, acceptance and use of macroeconomic variables, a normative approach, and an emphasis on case studies. Microeconomics is applied to operational issues like production, costs, pricing, and investment. Macroeconomics is applied to the business environment, including factors like government policies, foreign trade, and the overall economic system.
This document outlines the objectives and content of an MBA course on managerial economics. The objectives are to understand the relevance of economics in business management and study functional areas like marketing, production, and costing from a broader economic perspective. The course content covers topics such as the role of managerial economists, theories of the firm and optimization techniques, basic economic principles, demand and supply analysis, cost theory, market structures and pricing practices, profit management, and economics for tourism and hospitality industries. Reference books on managerial economics are also provided.
Managerial economics scope @ ppt mba 2009Babasab Patil
Managerial economics involves applying economic theory to business decision making and planning. It helps managers make choices about resource allocation and deal with uncertainty. Some key aspects covered in managerial economics include demand analysis, cost analysis, production planning, pricing strategies, and profit and capital management. The goal is to provide economic frameworks and analysis to help businesses operate efficiently and achieve their objectives.
Managerial economics operates at the intersection of microeconomics and macroeconomics. It uses economic theory and quantitative methods to help managers solve practical business problems related to production, cost, pricing, investment, and forecasting. The scope of managerial economics includes decisions about what and how much to produce, pricing strategies, investment analysis, and understanding how external economic conditions impact the firm. It draws on concepts from accounting, finance, and other disciplines to analyze internal issues and make prescriptive recommendations for optimal solutions.
Managerial economics uses economic theories and analysis to help managers make business decisions. It involves theories such as demand, production, costs, prices, profits, and capital. Demand refers to how much of a product consumers are willing and able to buy at different price points. Production combines various inputs to make goods and services for consumption. Cost theory examines the expenses incurred in production. Price theory aims to achieve equilibrium between supply and demand. Profits are the net income remaining after all costs are deducted from total revenue. Capital budgeting determines whether long-term investments like new equipment are worth funding to increase the value of the firm.
This document provides an introduction to managerial economics. It defines managerial economics as the integration of economic theory with business practice to facilitate managerial decision making. It discusses how managerial economics uses economic analysis and modes of thought to analyze business situations and formulate policies. The document also outlines some key characteristics of managerial economics, its importance in business decision making, and the roles and responsibilities of managerial economists in areas like forecasting, market research, and production scheduling. Finally, it discusses concepts like decision making, optimization, and marginal analysis that are important tools in managerial economics.
difference between economics and managerial economicsShashank Pal
Managerial economics applies economic principles to managerial decision-making, focusing on microeconomic applications rather than macroeconomic theory. It aids managers in choosing between alternative courses of action to solve economic problems and make decisions. The objectives of a firm include profit maximization, value maximization, revenue maximization, size maximization, long-run survival, and welfare maximization for personal or social welfare.
Managerial economics applies economic theories, principles, and analytical tools to managerial decision-making. It is the branch of economics that studies the management of a firm. Some key points covered in the document include:
- Managerial economics uses concepts from micro and macro economics. It focuses on applying economic theories to solve practical business problems.
- It involves using analytical tools like mathematical and statistical methods to evaluate alternatives and select optimal choices for issues like pricing, production, costs, profits, and more.
- Managerial economics principles include opportunity cost, marginal analysis, equi-marginal returns, incremental costs and benefits, time value of money, and discounting cash flows.
- Economic models are structural methods
Nature and Scope of Managerial Economics in relation with other disciplines – Role and Responsibilities of Managerial Economist – Goals of Corporate Enterprises: Maximization of profit - Value of enterprise
Managerial economics applies economic theory and methodology to business decision-making. It helps managers identify economic choices and allocate scarce resources to achieve organizational goals. Some key topics covered in managerial economics include demand analysis, cost analysis, production and supply analysis, pricing decisions, profit management, and capital management. Quantitative tools and concepts from economics like elasticity, costs, and optimization are used to analyze business problems and guide managerial decisions.
Measuring National output and National IncomeNoel Buensuceso
Gross domestic product (GDP) measures the total market value of all final goods and services produced within a country in a period of time. GDP can be calculated using the expenditure approach, which adds up personal consumption, investment, government spending, and net exports, or the income approach, which adds up incomes from wages, rents, interest, and profits. Real GDP adjusts nominal GDP for inflation using a price index to reflect the value of output in constant prices. While GDP is a key economic indicator, it has limitations and does not account for non-market activities or environmental impacts.
Measuring National Output and National IncomeNoel Buensuceso
The document discusses key concepts related to measuring national output and national income. It defines GDP as the total market value of all final goods and services produced within a country in a given period. GDP can be calculated using the expenditure approach, which sums consumer spending, investment, government spending, and net exports, or the income approach, which sums compensation, profits, interest, and rents. The document also discusses related concepts like GNP, NNP, personal income, and disposable personal income.
- The document discusses the syllabus for a managerial economics course with 5 units covering topics like general foundations, market structures, economic decision making, national income models, and macroeconomic policies.
- Unit 1 introduces economic approaches and the circular flow of economic activity. It also covers firm objectives, demand analysis, production functions, and cost concepts.
- Other units discuss product and input markets under different structures, capital budgeting techniques, indicators of national income, and the interrelationships between fiscal and monetary policies.
Managerial economics is the application of economic theory and methodology to managerial decision making. It helps managers optimize business behavior and integrate economic theory with business practice to facilitate optimal decision making. Some key concepts in managerial economics include opportunity cost, marginality, production possibility frontier, and discounting principle. Managerial economics uses both microeconomic and macroeconomic analysis to address internal business issues like production, pricing, investment decisions as well as external issues like industry trends and government policies. The goal is to help managers make rational economic choices and maximize profits given scarce resources.
Managerial economics applies economic theory and decision science tools to help organizations achieve their objectives efficiently. It uses microeconomics, macroeconomics, mathematical economics, and econometrics to solve managerial problems and make optimal decisions. The goal is to maximize the value of the firm over time by finding the optimal solutions to managerial problems through the application of economic theory and analysis.
This document provides an overview of Unit 1 of a course on Managerial Economics. It outlines the key learning outcomes which include explaining the meaning, characteristics, scope, and techniques of managerial economics. It also describes how managerial economics can be applied in decision making, marginal analysis, and optimization. Finally, it provides the estimated time required to complete the unit, a content map of the topics to be covered, and a brief introduction to the first topic - the concept of managerial economics.
Managerial economics applies economic theory and tools of analysis to help organizations achieve objectives efficiently. It uses microeconomic and macroeconomic concepts as well as quantitative techniques to solve business problems. Managerial economics aids management decision-making in areas like production, pricing, resources and competition. It provides a framework for determining objectives, identifying alternative solutions, and selecting optimal courses of action. The principles of managerial economics are integral to business decision-making and estimating risk.
Managerial economics is the science of directing scarce resources to manage cost effectively. It uses economic models and theory to analyze business solutions and facilitate decision-making. Some key aspects of managerial economics are that it is concerned with economic decision-making, goal-oriented, pragmatic, both conceptual and quantitative, and provides a link between traditional economics and decision sciences. Managerial economics applies microeconomic theory at the firm level for normative decision-making and concentrates on making economic theory more application-oriented for optimal business problem solutions.
Managerial economics is the application of economic theory and methodology to address practical business problems. It helps managers make decisions regarding demand analysis, cost analysis, pricing, profit management, and capital management. Specifically, it provides frameworks for demand forecasting, cost-output analysis, determining optimal prices and pricing strategies, profit planning and measurement, and evaluating capital investment projects and managing a firm's capital. The goals and objectives of firms include maximizing sales revenue, growth rate, managerial utility, satisfying multiple constituencies, and long-run survival with sufficient market share.
Managerial economics applies microeconomic concepts and analysis to help managers make rational decisions. It uses economic theories to help firms overcome problems and achieve objectives. Managerial economics focuses on demand analysis, supply analysis, cost analysis, pricing decisions, profits, and capital management to inform business analysis and decision making. A key function of managers is decision making, which involves selecting the best alternative to efficiently attain goals like profit maximization. Managerial economics helps reduce uncertainty in decisions by analyzing factors like demand, supply, and the business environment.
Managerial Economics: Concept of Economy, Economics, Microeconomics, Macroeconomics. Nature and Scope of Managerial Economics, Managerial Economics and decision-making Concept of Firm, Market, Objectives of Firm: Profit Maximization Model, Economist Theory of the Firm, Cyert and March’s Behavior Theory, Marris’ Growth Maximisation Model, Baumol’s Static and Dynamic Models, Williamson’s Managerial Discretionary Theory.
Managerial Economics- Introduction,Characteristics and ScopePooja Kadiyan
This document provides an introduction to the scope of managerial economics. It defines managerial economics as the integration of economic theory with business practice to facilitate decision-making. The key areas covered in the scope of managerial economics include microeconomic analysis of the firm, acceptance and use of macroeconomic variables, a normative approach, and an emphasis on case studies. Microeconomics is applied to operational issues like production, costs, pricing, and investment. Macroeconomics is applied to the business environment, including factors like government policies, foreign trade, and the overall economic system.
This document outlines the objectives and content of an MBA course on managerial economics. The objectives are to understand the relevance of economics in business management and study functional areas like marketing, production, and costing from a broader economic perspective. The course content covers topics such as the role of managerial economists, theories of the firm and optimization techniques, basic economic principles, demand and supply analysis, cost theory, market structures and pricing practices, profit management, and economics for tourism and hospitality industries. Reference books on managerial economics are also provided.
Managerial economics scope @ ppt mba 2009Babasab Patil
Managerial economics involves applying economic theory to business decision making and planning. It helps managers make choices about resource allocation and deal with uncertainty. Some key aspects covered in managerial economics include demand analysis, cost analysis, production planning, pricing strategies, and profit and capital management. The goal is to provide economic frameworks and analysis to help businesses operate efficiently and achieve their objectives.
Managerial economics operates at the intersection of microeconomics and macroeconomics. It uses economic theory and quantitative methods to help managers solve practical business problems related to production, cost, pricing, investment, and forecasting. The scope of managerial economics includes decisions about what and how much to produce, pricing strategies, investment analysis, and understanding how external economic conditions impact the firm. It draws on concepts from accounting, finance, and other disciplines to analyze internal issues and make prescriptive recommendations for optimal solutions.
Managerial economics uses economic theories and analysis to help managers make business decisions. It involves theories such as demand, production, costs, prices, profits, and capital. Demand refers to how much of a product consumers are willing and able to buy at different price points. Production combines various inputs to make goods and services for consumption. Cost theory examines the expenses incurred in production. Price theory aims to achieve equilibrium between supply and demand. Profits are the net income remaining after all costs are deducted from total revenue. Capital budgeting determines whether long-term investments like new equipment are worth funding to increase the value of the firm.
This document provides an introduction to managerial economics. It defines managerial economics as the integration of economic theory with business practice to facilitate managerial decision making. It discusses how managerial economics uses economic analysis and modes of thought to analyze business situations and formulate policies. The document also outlines some key characteristics of managerial economics, its importance in business decision making, and the roles and responsibilities of managerial economists in areas like forecasting, market research, and production scheduling. Finally, it discusses concepts like decision making, optimization, and marginal analysis that are important tools in managerial economics.
difference between economics and managerial economicsShashank Pal
Managerial economics applies economic principles to managerial decision-making, focusing on microeconomic applications rather than macroeconomic theory. It aids managers in choosing between alternative courses of action to solve economic problems and make decisions. The objectives of a firm include profit maximization, value maximization, revenue maximization, size maximization, long-run survival, and welfare maximization for personal or social welfare.
Managerial economics applies economic theories, principles, and analytical tools to managerial decision-making. It is the branch of economics that studies the management of a firm. Some key points covered in the document include:
- Managerial economics uses concepts from micro and macro economics. It focuses on applying economic theories to solve practical business problems.
- It involves using analytical tools like mathematical and statistical methods to evaluate alternatives and select optimal choices for issues like pricing, production, costs, profits, and more.
- Managerial economics principles include opportunity cost, marginal analysis, equi-marginal returns, incremental costs and benefits, time value of money, and discounting cash flows.
- Economic models are structural methods
Nature and Scope of Managerial Economics in relation with other disciplines – Role and Responsibilities of Managerial Economist – Goals of Corporate Enterprises: Maximization of profit - Value of enterprise
Managerial economics applies economic theory and methodology to business decision-making. It helps managers identify economic choices and allocate scarce resources to achieve organizational goals. Some key topics covered in managerial economics include demand analysis, cost analysis, production and supply analysis, pricing decisions, profit management, and capital management. Quantitative tools and concepts from economics like elasticity, costs, and optimization are used to analyze business problems and guide managerial decisions.
Measuring National output and National IncomeNoel Buensuceso
Gross domestic product (GDP) measures the total market value of all final goods and services produced within a country in a period of time. GDP can be calculated using the expenditure approach, which adds up personal consumption, investment, government spending, and net exports, or the income approach, which adds up incomes from wages, rents, interest, and profits. Real GDP adjusts nominal GDP for inflation using a price index to reflect the value of output in constant prices. While GDP is a key economic indicator, it has limitations and does not account for non-market activities or environmental impacts.
Measuring National Output and National IncomeNoel Buensuceso
The document discusses key concepts related to measuring national output and national income. It defines GDP as the total market value of all final goods and services produced within a country in a given period. GDP can be calculated using the expenditure approach, which sums consumer spending, investment, government spending, and net exports, or the income approach, which sums compensation, profits, interest, and rents. The document also discusses related concepts like GNP, NNP, personal income, and disposable personal income.
Managerial economics uses economic analysis to help managers make optimal business decisions by allocating scarce resources efficiently. It draws on microeconomic concepts and decision science tools. The goal is to find solutions that maximize profit or other objectives given the firm's constraints. Managerial economics helps managers address questions like pricing, production levels, costs, markets, and regulations to best achieve the firm's goals.
Managerial economics ppt baba @ mba 2009Babasab Patil
Managerial economics involves applying economic principles to business management problems in order to facilitate optimal decision-making. It integrates economic theory with business practices. Managerial economics helps managers understand concepts like opportunity costs, marginal analysis, and incremental costs to make decisions around pricing, production levels, investment, and more. It draws on both microeconomics, which examines individual markets and industries, and macroeconomics, which analyzes the overall economy and external business environment.
Managerial economics is the application of economic theory and concepts to business decision making. It helps managers make rational decisions and plans by integrating economic theory with business practice. Managerial economics examines microeconomic issues like what and how much to produce, and for whom. It is related to areas like production, marketing, finance, human resources, and operations research. The managerial economist assists managers in strategic decisions regarding production, pricing, costs, and human resource management using analytical methods.
Economics studies how societies deal with scarcity and make choices about resources. It examines both incomes/prices and also how to decide when markets are appropriate versus other solutions. While economics began focusing on wealth, it now considers human welfare and studies choices between unlimited wants and limited/scarce means. Definitions have evolved from wealth to also incorporate welfare, choice, and growth. Economics employs both scientific and practical approaches, using measurement but also offering policy solutions. It aims to positively explain economic systems while not passing judgement on ends.
Unit I
Introduction; meaning and nature of research; significance of research in business decision making, identification and formulation of research problem, setting objectives and formulation of hypotheses.
Unit-II
Research design and data collection; research designs – exploratory, descriptive, diagnostic and experimental data collection; universe, survey population, sampling and sampling designs. data collection tools- schedule, questionnaire, interview and observation, use of SPSS.
Unit-III
Scaling techniques; need for scaling, problems of scaling, reliability and validity of scales, scale construction techniques- arbitrary approach, consensus scale approach (Thurston), item analysis approach (Likert) and cumulative scales (Gut man’s Scalogram)
Unit-IV
Interpretation and report writing; introduction, meaning of interpretation, techniques and precautions in interpretation and generalization report writing- purpose, steps and format of research report and final presentation of the research report.
1) Managerial economics refers to applying economic theory to managerial decision making in businesses. It informs decisions related to production, pricing, investment, and other areas.
2) Managerial economics draws on microeconomics but also considers macroeconomic factors. It makes normative and prescriptive recommendations to help managers optimize outcomes.
3) Key applications of managerial economics include demand analysis, pricing strategies, production and cost analysis, resource allocation, and investment analysis. These areas help managers maximize profits within the economic environment.
BE Unit-1 Part-1 (Nature, Scope & Objectives).pdfAnjali244579
This document provides an overview of key topics in business economics, including:
1. The meaning and scope of business economics, including microeconomics and macroeconomics applications.
2. The objectives of business firms, moving from the traditional view of profit maximization to modern theories recognizing the separation of ownership and management. Objectives include utility maximization, revenue/sales maximization, and satisficing.
3. The time dimension of objectives, with short-run profit maximization differing from long-run goals of ensuring sustainability.
In under 3 sentences, this document introduces the core areas covered in business economics and discusses the evolution of theories around the objectives of business firms from a traditional profit maximization view
This document provides an overview of managerial economics. It defines managerial economics as the application of economic theories, principles, and analytical tools to managerial decision-making. It discusses how managerial economics is related to but narrower in scope than economics. It also outlines how managerial economics integrates concepts from other disciplines like accounting, mathematics, statistics, operations research, and decision theory to help analyze problems and guide optimal business decisions.
This document provides an overview of the course Managerial Economics. It covers 5 units: introduction to managerial economics, cost analysis, market structure, national income, and monetary policy. Key concepts covered include demand, costs, production, market structures like perfect competition and monopoly, profit analysis, and investment decisions. The document also defines managerial economics as the application of economic theory to managerial decision making.
Basic principles in the application of managerial economicsMilan Verma
Basic Principles in the Application of Managerial Economics, what is economics and introduction, Micro economics
Normative (prescriptive) science, Pragmatic (Practical), Uses Macro economics, Uses theory of firm, Management oriented, Multi disciplinary, Art and science. Scope of Managerial Economics, theory of demand and demand analysis, envirmental issues, Significance of managerial economics in decision making, Significance of managerial economics in decision making
Business Economics unit-1 Osmania University IMBA Balasri Kamarapu
Managerial economics is the application of economic theory and methodology to managerial decision making. It helps managers make optimal decisions about allocating scarce resources. Some key concepts in managerial economics include opportunity cost, incremental cost, time perspective, discounting, and the equi-marginal principle. Opportunity cost refers to the next best alternative forgone in making a decision. Incremental cost is the additional cost of producing one more unit. Managers must consider both short-run and long-run time perspectives. Discounting accounts for the time value of money by calculating present values. The equi-marginal principle suggests allocating resources to equalize marginal productivity gains across activities.
Managerial economics applies economic theory and quantitative methods to business administration problems. It bridges economic theory and business practice for facilitating managerial decision-making and planning. Managerial economics uses concepts from microeconomics and integrates economic theory with management principles. It helps managers make optimal decisions regarding production, pricing, inputs, profits, investments, and forecasting through tools like demand analysis, cost-benefit analysis, and quantitative modeling. Managerial economics draws from disciplines like accounting, finance, statistics, mathematics, and operations research.
This document provides an introduction to managerial economics. It discusses key concepts in managerial economics including demand analysis, pricing strategies, production and cost analysis, and capital allocation. It also outlines the scope of managerial economics, covering operational issues within a business like demand forecasting, pricing, production, and resource allocation, as well as external environmental issues like economic trends, financial markets, and government policy. The relationship between managerial economics and other disciplines like economics, management, mathematics, and statistics is also described. Finally, some basic economic tools for managerial decision making are introduced, such as opportunity cost, incremental analysis, time value of money, and equi-marginal returns.
This document provides an overview of managerial economics. It defines managerial economics as the application of microeconomic analysis and quantitative methods to business decision making. The key aspects covered include the meaning and definitions of managerial economics, its relationship to economics and business management, its characteristics as a pragmatic and normative discipline, and its scope in areas like demand analysis, cost analysis, production, pricing, profit, and capital management. Decision making in managerial economics involves applying economic principles to solve problems related to a business's internal and external environments under conditions of uncertainty.
The document discusses the objectives of business firms. It states that the conventional view is that profit maximization is the sole objective of businesses. However, other objectives exist as well, such as maximizing sales revenue, growth rate, or manager's utility. The document then focuses on profit as a key business objective. It defines accounting profit versus economic profit, with economic profit accounting for implicit opportunity costs. The objectives of business incubators are also outlined, which aim to support startups and increase survival rates through various resources and services.
Managerial economics applies economic theory and quantitative methods to business administration to help managers make optimal decisions about allocating resources. It combines economics, statistics, and mathematics to model problems and facilitate decision-making. As a microeconomic and applied field, it examines how firms make production, pricing, and investment choices. The managerial economist supports management by analyzing internal operations and external factors, conducting research, and advising on issues like pricing, investment, production, and responding to economic trends. The goal is optimal resource use and business performance.
Strategic management contribute to :
develop competitive advances and reveals implementation practices and mechanisms of control
Allow a long-term alignment and a progressive environment strategy
Lead to globalization and strategic flexibility
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This PPT focuses on the introduction to Managerial Economics. The nature and scope of managerial economics along with its relationship with other subjects. This PPT will provide insights about the roles and responsibilities of managerial economists and objectives of the firm.
Managerial economics applies economic theory and quantitative methods to facilitate managerial decision-making and forward planning by management. It involves using microeconomic concepts like elasticity, marginal costs and revenues to maximize profits by allocating scarce resources efficiently. While standard economic theory provides the basis, managerial economics focuses on applying economic analysis to solve practical business problems involving production, pricing, capital budgeting and resource allocation. It aims to guide managers in making optimal choices given constraints and uncertainty.
This document provides an introduction to the concepts of managerial economics. It discusses the five general managerial functions of planning, organizing, staffing, leading, and controlling. It defines managerial economics as the application of economic theory to help managers make decisions, drawing on concepts like cost, demand, profit, and competition. The document outlines the nature, scope, and key aspects of managerial economics, including its focus on microeconomics and solving problems at the firm level, as well as its use of macroeconomics to address external environmental factors.
Managerial economics deals with applying economic theory and methodology to managerial decision making. It aims to help managers make optimal choices related to production, cost, pricing, revenue, profits and resource allocation. Some key concepts in managerial economics include demand analysis and forecasting, production functions, cost analysis, inventory management, pricing systems, and allocating scarce resources efficiently. Microeconomic concepts like elasticity, marginal costs and revenues are important analytical tools for managerial decision making under conditions of uncertainty.
This document provides an overview of engineering economics and key economic concepts. It discusses:
1. The unit introduces engineering economics and covers topics like demand analysis, elasticity, and forecasting techniques.
2. It defines economics and explains that economics studies how individuals and nations earn and spend money.
3. The key steps in engineering economic studies are outlined as the creative, definition, conversion, and decision steps.
This document provides an overview of engineering economics and managerial economics. It defines economics as the study of human activity and wealth at both the individual and national levels. It then discusses key concepts in engineering economics like the four steps of planning an economic study. Microeconomics is defined as the study of individual consumers and firms, while macroeconomics is the study of aggregate economic activity at the national level. Finally, it outlines the scope of managerial economics, including demand analysis, pricing strategies, production and cost analysis, and resource allocation.
This document discusses the field of economics and managerial economics. It defines economics as the study of how societies allocate scarce resources among competing uses. It then outlines several areas economics explores, such as markets, monetary policy, trade, and growth. Managerial economics is defined as applying economic principles and analysis to business decision-making. The purpose is to help managers make optimal choices given limited resources. Some key topics in managerial economics include demand, production, market structure, and capital investment. It also examines how managerial economics relates to other business disciplines like marketing, finance, and accounting.
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Managerial economics for mm ims semester 1
1. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 1
MANAGERIAL ECONOMICS FOR MM FT SEMESTER 1 – 2013-15
UNIT 1 - INTRODUCTION TO ECONOMICS AND MANAGERIAL ECONOMICS
a. NATURE
b. SCOPE
c. CHARACTERISTICS AND SIGNIFICANCE OF MANAGERIAL ECONOMICS
d. RELATIONSHIP OF MANAGERIAL ECONOMICS WITH ECONOMICS, OPERATION
RESEARCH, DECISION MAKING, STATISTICS, ACCOUNTING ETC.
NATURE -
“Application of economic theory and tools of analysis of decision science to examine how an
organization can achieve its objectives most efficiently”- Salvatore
Spencer and Siegelman: “… Integration of economic theory with business practice for the
purpose of facilitating decision making and forward planning by management”
Evan Douglas: “Application of economic principles and methodologies to the decision-making
process within the firm or organization…under conditions of uncertainty”
Decision Making Process –
5 Stages of Decision making Process:
1. Define the problem
2. Determine the objective
3. Identify possible solutions
4. Select the best possible solution
5. Implement the decision
Importance of Quantitative Tools
• Analysis of variables is a key procedure in economic analysis.
• Economic research and policy-making require up-to-date data and extensive analysis.
• Use of Mathematical tools
• Use of Statistical Techniques
Time Series: For Demand forecasting
Regression: Two or multiple variables used to study interrelationships, estimation and
prediction
Measures of central tendency and variation
2. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 2
Role of Economics –
What is the role of Economics in Business?
Costs, prices, output, compensation, strategic behavior, importantly, ethics
The Big Picture- Whose job?
The BIG Picture
Product
Market
FirmsHouseholds
Factor
Market
Income spent
Goods demand
Inputs supplied
Income earned
Inputs demand
Factor costs
Goods supplied
Revenue earned
Economic theory forms the basis for different management areas such as accounts, finance,
marketing, systems and operations.
A manager has to deal with problems pertaining to the individual firm as well as domestic and
global environment.
• Microeconomics: Deals with individual unit
• Macroeconomics: Deals with aggregates
Microeconomics:
Theory of demand and supply- consumer behavior, demand theory, demand forecasting and
factors affecting individual and market supply- Helps in choice of commodities for production
Theory of Production: Production function and laws of returns to scale etc- gives an idea about
I/O relations, input requirement size of firm, technology choice of output. Helps producer to plan
production, cost and budget.
Market Analysis: helps understand degrees of competition, pricing-output decisions, price
discrimination, monopoly power, and advertising
3. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 3
Profit Analysis: Provides logical analysis of break-even point, emergence of profits, profit-
maximizing output, dealing with risk and uncertainty
Theory of capital: Along with quantitative techniques enables investors to calculate cost of
capital, efficiency of capital, efficient allocation of capital, and choice of projects as per risk-
return analysis
Behavior of macroeconomic indicators: GDP, GNP, GDCF, GDS, HDI etc.
Business Cycles – Inflation- Employment
Fiscal Policy
Monetary Policy
Foreign Trade: Imports and exports, Exchange rate, trade policies and capital flows
Macro economics: How variables and policies impact business?
Role of Economics in Business:
• Economics is a tool, means to an end
• To help Efficient allocation and achieve business objectives
• Optimizing behavior- Maximize goals, minimize costs under constraint
Logic, tools and techniques of economics to analyze business problems, evaluate business
options and opportunities with a view to arriving at an appropriate business decision.
• 3 main contributions of economic theory to business economics, according to Baumol:
o Analytical models: To recognize the structure of managerial problems, eliminate
minor details, and concentrate on main issue
o Ascertaining relevant variables and specifying the data - Even if the models are not
directly applicable, they enhance capabilities of business analyst
o Economic theories offer conceptual clarity to avoid conceptual pitfalls
Provides consistency to business analysis
Role of Managerial Economist:
A. To decide
• What to produce?
• Where?
• How?
• How much?
• Allocation of resources?
• For whom to produce?
• At what price to sell?
B. Plan and control business operations-
• Cost minimization
• Profit maximization
• Managing competition
• Economic intelligence
• Market research
C. Uncertainty & Risk management
4. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 4
• Forecast change in environment and policies- domestic and international
• To manage change in global scenario
• Everything comes at a price- quality is not free
Growing Challenges to the Managerial Economist:
• Globalization - People-goods-services- communication- Finance- Ideas
o Global corporations
o Research & production facilities across countries
o Global markets
o Global Finance
o Employment Diversity
o Global work culture
o Resource base: Crossing boundaries
o Global management practices
o Outsourcing
o Increased competition
o Increased Opportunity
o Tastes converging internationally?
o Customizing to local tastes
o Not merely exporters, but need to be insiders in major markets
• Computerization and Technology
o Easier model-building and simulation
o Quick and complicated data analysis
o Rapid spread of information
o Internet changing both buyers and sellers
o Videoconferencing- saving cost and time
o Paperless administration
o Speed of dispatch, lower inventories, less waste
• Dismantling of Traditional Hierarchies
o Information today can be transmitted directly from top management to workers
o Middle managers are today increasingly being used to shelter top management from
day-to-day activities
• Changing Basis for Value Creation
o Peter Drucker: World is moving from “economy of goods” to an “economy of
knowledge”
o Creation of value increasingly based on knowledge and communications and not natural
resources and physical labour
• Bridging the gap between theory and Practice :
o Real world is complex, “chaotic”, interdependent as against simplifying economic
assumptions
o Not tailor-made solutions but a framework of logical thinking
5. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 5
• The Global business Leader has to Imbibe and inculcate essential qualities such as
o Global outlook
o Managing diversities
o Flexibility with efficiency
o Long-term goals with steps and migration path
o Speed and stamina for transformation
• Essentially, 3 sets of skills:
o Human- understand, work with and motivate with other people as individuals as well as
groups
o Technical- Ability to use tools, techniques and processes that are specific to the field
o Conceptual-Ability to analyze complex situations and respond effectively to challenges
SCOPE OF MANAGERIAL ECONOMICS -
• Demand analysis and forecasting
• Cost analysis
• Production and supply analysis
• Pricing decisions, policies and practices
• Profit management, and Capital management
CHARACTERISTICS AND SIGNIFICANCE OF MANAGERIAL ECONOMICS –
• Managerial economics is micro-economic in character
• Uses broadly theory of the firm concepts
• Also seeks to apply profit theory which forms part of distribution theories
• Is pragmatic as it avoids difficult abstract issues of economic theory.
• But involves dealing with real life complications of business world
• Belongs to normative economics rather than positive economics. It is prescriptive rather
than descriptive. It involves judgment as to what is good/bad for business. Managerial
economics deals with which decision needs to be made on the basis of its merits and
demerits. Economic theory does not go into judging decisions. Managerial economics tells
what the aims and objectives of a firm should be. Then it tells how best these can be
achieved
• Managerial economics is therefore described as ‘normative micro-economics of the firm’
• Macro-economics is also useful to managerial economics as it provides an intelligent
understanding of the environment in which the business must operate.
6. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 6
RELATIONSHIP OF MANAGERIAL ECONOMICS WITH ECONOMICS, OPERATION
RESEARCH, DECISION MAKING, STATISTICS, ACCOUNTING ETC. –
STRATEGIC
MANAGEMENT
ACCOUNTANCY MARKETING
FINANCE
INFORMATION ORGANIZATION
SYSTEMS BEHAVIOUR
OPERATIONSRESEARCH HUMANRELATIONS
ECONOMETRICS
ECONOMICS PSYCHOLOGY
SOCIOLOGY
RATE OFRETURN(HIGH) RATEOFRETURN(LOW)
TIMESPAN (LOW) TIMESPAN (HIGH)
- MANAGEMENT = ECONOMICS + PSYCHOLOGY (BROADER LEVEL OF UNDERSTANDING AS IS
PERCEIVED BY MOST INDIVIDUALS. THE BEDROCK IS FORMED FROM “S O C I O L O G Y”)
7. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 7
UNIT 2 - FUNDAMENTAL CONCEPTS
a. INCREMENTAL REASONING
b. MARGINAL ANALYSIS
c. EQUIMARGINAL UTILITY
d. TIME PERSPECTIVE
e. CONSUMER SURPLUS
f. OPPORTUNITY COST
g. TIME VALUE OF MONEY
h. THEORIES OF FIRM –
• MANAGERIAL THEORIES – BAUMOL AND WILLIAMSON
• BEHAVIORAL THEORIES – SIMON, CYRET AND MARCH
INCREMENTAL REASONING -
A Guide to Economic Reasoning - Economic reasoning is making decisions by comparing costs
and benefits.
Incremental reasoning is used in accepting or rejecting a business proposition or option.
Whenever a manager takes a decision he asks the question – “Is it worthwhile?” - The implicit
criterion is that incremental benefit should exceed its incremental costs. Decision or action is
worthwhile already if the decision maker or the firm can expect to be better off than before.
Original reasoning forces the manager to examine the changes in total revenues and total costs
resulting for changes in production, sales, price and related decisions. Wrong decisions may
follow if the focus is on the concept of average than on marginal analysis.
2 basics components of I.R are –
Incremental Cost
Incremental Revenue
MARGINAL ANALYSIS –
o Marginal Costs and Marginal Benefits
o The relevant costs and benefits are the expected incremental, or additional,
costs incurred and the expected incremental benefits of a decision.
o Economist use the term marginal when referring to additional or incremental.
o Marginal cost – the additional cost to you over and above the costs you have
already incurred.
This means not counting sunk costs – costs that have already been
incurred and cannot be recovered.
o Marginal benefit – the additional benefit above and beyond what you’ve
already accrued.
o According to the economics decision rule:
If the relevant benefits of doing something exceed the relevant costs, do
it.
8. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE
If the relevant costs of doing something exceed the relevant benefits,
don’t
Rs. Invested
(Rs’0000)
Π A (Profit)
(Rs’000)
Π B (Profit)
(Rs’000
1 9
2 17
3 24
4 30
5 35
6 39
7 42
8 44
9 45
10 45
Utility Approach to Consumer Behavior
· Need for cardinal measure of utility
· analysis is useful for explaining behavior
· Total and Marginal utility
· “law of diminishing Marginal Utility”
· Equimarginal rule and utility maximization
Nature of Total Utility -
M.S , D.A.V.V, INDORE
If the relevant costs of doing something exceed the relevant benefits,
don’t do it.
(Profit)
(Rs’000)
Δ A Δ B selection
4 - - A
8 8 4 A
12 7 4 A
16 6 4 A
20 5 4 A
24 4 4 A/B
28 3 4 B
32 2 4 B
36 1 4 B
40 0 4 B
Utility Approach to Consumer Behavior -
Need for cardinal measure of utility
ysis is useful for explaining behavior
Total and Marginal utility
“law of diminishing Marginal Utility”
Equimarginal rule and utility maximization
Page 8
If the relevant costs of doing something exceed the relevant benefits,
9. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 9
· When more and more units of a good are consumed in a specific time period, the utility
derived tends to increase at a decreasing rate
· Eventually, some maximum utility is derived and additional units cause total utility to
diminish. As an example, think of eating “free” hot cakes.
· It is possible for total utility to initially increase at an increasing rate.
Marginal Utility –
· Marginal utility [MU] is the change in total utility associated with a 1 unit change in
consumption.
· As total utility increases at a decreasing rate, MU declines.
· As total utility declines, MU is negative
· When TU is a maximum, MU is 0 [This is sometimes called the “Satiation point” or the point
of “absolute diminishing utility.”
Marginal Utility [MU] is the change in total utility [∆TU]
caused by a one unit change in quantity [∆Q] ;
MU = ∆∆∆∆TU
∆Q
Utility
Q
1
2
4
8
5
6
7
3
TU
30
55
75
90
100
105
105
100
MU
The first unit consumed increases TU by 30.
.
Remember that the MU is associated with the
midpoint between the units as each additional
unit is added.
30 .25
∆Q
The 2cd unit increases TU by 25.
25
.
20
.
15
10
.
5
0
-5
1 2 3 4 5 6 7 Q/ut
10
20
30
MU
. ..
MU
Fall ‘ 97 Principles of Microeconomics Slide -- 9
1 2 3 4 5 6 7 Q/ut
20
40
60
100
80
120 TU
TU
1 2 3 4 5 6 7 Q/ut
10
20
30
MU
The MU is the slope of TU or the
rate of change in TU associated
with a one unit change in quantity.
[Using calculus, MU is the change in TU
as change in quantity approaches 0.]
The first unit consumed, ∆Q
increases TU by 30, ∆TU.
∆Q
.
.
.
. . . . .
∆TU
For the first unit:
∆TU
∆Q
MU = =
1
30
The slope of TU is = 30,
∆Q
∆TU
. The second unit changes TU [ ∆TU] by
25, The slope of TU between the 1 and
second unit is 25.
.
between the 2cd and 3rd
units ∆TU = 20 or the
slope of TU is 20.
. . . . . .
MU
MU is the slope of the TU.
Where MU = 0, TU is a maximum.
max TU
10. P.S CHANDIRAMANI @ I.M.S , D.A.V.V, INDORE Page 10
Consumer Preferences –
· Both MU and TU are determined by the “preferences” or utility function of the individual
and the quantity consumed.
· Utility cannot be measured directly but individual choices reveal information about the
individual’s preferences
· Surrogate variables [age, gender, ethnic background, religion, etc.] may be correlated with
preferences.
· There is a tendency for TU to increase at a decreasing rate [MU declines] as more of a good
is consumed in a given time period: i.e. “diminishing marginal utility”
Diminishing Marginal Utility –
· Initially, it may be possible for TU to increase at an increasing rate. In which case MU will
increase [MU is the slope of TU which is increasing].
· Eventually, as more and more of a good are consumed in a given time period, TU continues
to increase but at a decreasing rate; MU decreases.
· This is called the point of “diminishing marginal utility.”
Law of Diminishing MU –
Notes about the Law of Diminishing MU
o Time period must be specified for law.
o Law tells us that eventually the marginal utility curve will be downward sloping.
o Law tells us that eventually the total utility curve will become “flatter.”
o Slope of the total utility curve is equal to marginal utility
Shape of MU –
Eventually downward sloping
Law of diminishing marginal utility
• Positive always
Rational behavior
• Consumer only purchases a good if they get some positive utility from it.
Consumer Choices –
· If there were no costs associated with choices, the individual will consume a good until MU
= 0 [this maximizes TU or the total benefits, TB]
· Typically, individuals are constrained by a budget [or income] and the prices they pay for the
goods they consume.
· Net benefits are maximized where MB = MC; as long as the MU or MB of the next unit of
good purchased exceeds the Price or MC, it will increase net benefits
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Society and Individual –
· The individual will purchase more of a good so long as their perceived or anticipated MB
exceeds the price they must pay for the good: Buy so long as MB > P, optimum where, P =
MB
· From a social perspective that good should only be produced and sold if the price is greater
than or equal to the MC: Sell so long as P > MC, optimum where P = MC
· Social optimum when MB = P = MC
LAW OF EQUI-MARGINAL UTILITY –
o The Law of Equi-marginal utility is the further elaboration of the Law of diminishing
marginal utility.
o It is also known as the Law of Substitution and the Law of maximization of satisfaction.
o “The households maximizing the utility will so allocate the expenditure between
commodities that the utility of the last penny spent on each item is equal.”
o Formula for Consumer’s equilibrium…
MU(A)/P(A) = MU(B)/P(B) = ….= MU(N)/P(N)
o Assumptions:
Utilities are independent
Marginal utility of money remains constant.
Utility is cardinal.
Consumer is rational.
o Limitations..
Utility is immeasurable.
Indivisible goods
Prices and tastes are changing.
Time Factor.
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CONSUMER SURPLUS -
Fall ‘ 97 Principles of Microeconomics Slide -- 31
1 2 3 4 5 6 7 QX/ut
PX
1
2
3
4
5
6
7
Notice that someone is willing and able to pay $6.80 for the
first unit.
6.80
If the market price [established by S and D]
were $3, the buyer would purchase at $3 even though they
were willing to pay
$6.80 for the first unit.
They receive utility
that they did not have
to pay for [6.80-3.00].
This is called consumer
surplus.
At market equilibrium,
.Consumer surplus will be
the area above the market
price and below the demand
function.
consumer
surplus
CONSUMER SURPLUS
OPPORTUNITY COST-
o The Opportunity cost of the chosen activity is the value of the next-best alternative to
the activity you have chosen.
o Opportunity cost is the basis of cost/benefit economic reasoning.
o In economic reasoning, opportunity cost must be less than the benefit of what you have
chosen.
TIME VALUE OF MONEY -
Present value (PV) of an amount (FV) to be received at the end of “n” periods when the per-
period interest rate is “i”:
( )
PV
FV
i
n=
+1
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THEORIES OF FIRM –
o Sales Maximization Model – William Baumol
According to the sales-maximization model introduced by William Baumol and
others, managers of modern corporations seek to maximize sales after an
adequate rate of profit has been earned to satisfy stockholders.
Baumol argued that a larger firm may feel more secure, may be able to get
better deals in the purchase of inputs and lower rates in borrowing money, and
may have a better image with consumers, employees, and suppliers.
Indeed, some early empirical studies found a strong correlation between
executives’ salaries and sales, but not between salaries and profits. More recent
studies, however, found the opposite.
o Williamson’s Model of Managerial Discretion –
The managerial theory of firm developed by Oliver E. Williamson states that
managers apply discretion in making and implementing policies to maximize
their own utility rather than trying for the maximization of profit which
ultimately maximizes the utility of owner shareholders. This is known as the
management utility maximization.
It postulates that with the advent of the modern corporation and the resulting
separation of management from ownership, managers are more interested in
maximizing their utility, measured in terms their compensation (salaries, fringe
benefits, stock options, etc.), the size of their staff, the extent of control over
the corporation, lavish offices, etc., than in maximizing corporate profits.
This is referred to as the principal-agent problem. That is, the agent (manager)
may be more interested in maximizing his or her benefits than maximizing the
principal’s (the owner’s) interest.
o Theory of Satisfying - Simon
The advocates of satisficing theory say that firm’s goal should be satisficing
rather than optimizing. Satisfying means acceptance of less than the best. They
argue that the behavior of real-world managers is not always consistent with
the profit-maximization goal.
Because of the great complexity of running the large modern corporation – a
task often complicated by uncertainty and a lack of adequate data – managers
are not able to maximize profits but can only strive for some satisfactory goal in
terms of sales, profits, growth, market share, and so on.
Simon called this satisficing behavior. That is, the large corporation is a
satisficing, rather than a maximizing organization.
o Cyert and March’s Behavioral Theory
Cyert and March opined that a large-scale corporate type of firm exists these
days. Hence, entrepreneur cannot alone be a decision maker. The decision-
making involves a complex group or organization. It consists of various
individuals whose interest may conflict with each other.
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The group is called ‘organizational coalition’ and includes managers,
stockholders, workers, consumers and so on. All of these individuals participate
in setting the goals of an organization.
Unlike conventional theory of single goal, behavioral theory states that an
organization has multiple goals. The real world firm generally possesses the
following five goals:
• Production Goal: According to this goal, production should not
fluctuate too much nor fall below an acceptable level. Because this
ensures stable employment, maintenance of adequate cost
performance and growth, the workers and those in production
department have this goal.
• Inventory Goal: This goal originates mainly from the inventory
department, or from the sales and production departments. The sales
department needs enough stock of output for the customers, while the
production department requires adequate stocks of raw materials and
other items necessary for a uniform flow of the output.
• Sales Goal: The sales goal is simply an aspiration with respect to the
level of sales. Particularly, this goal arises from salesmen, since their
success depends on their ability to maintain or expand the sales.
• Market-share Goal: This goal is an alternative to the sales goal and
arises from the sales department. This department decides on the
advertising campaigns, the market research programmes, and so on.
• Profit Goal: This goal is set by the top management in order to satisfy
the demands of shareholders and the expectations of bankers; and also
to generate funds with which they can achieve their own goals and
projects, or satisfy the other goals of the firm.
While making decisions, firms are guided by these five goals. The conflict among
different goals may come up. For example, sales goal may require a lower price
whereas the profit goal a higher price. Sales and production goal may require
high inventories whereas profit goal may require low inventories. Such conflicts
among coalition members are resolved within the firm as a result of persuasion
and accommodation of each other’s viewpoint.
The firm in the behavioral theories seeks to satisfice overall performance, rather
than maximize profits, sales or other magnitudes. The firm is a satisficing
organization rather than a maximizing entrepreneur. The top management,
accountable for the coordination of the activities of the various members of the
firm, want:
• to attain a ‘satisfactory’ level of production,
• to attain a ‘satisfactory’ share of the market,
• to earn a ‘satisfactory’ level of profit
• to divert a ‘satisfactory’ percentage of their total receipts to research
and development or to advertising,
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• to acquire a ‘satisfactory’ public image, and so on.
But, it is not clear in the behavioral theories what is a satisfactory and what an
unsatisfactory attainment is.
Means for the Resolution of Conflicts:
• The top management uses different methods to resolve the conflicts
within the firm. The means for the resolution of conflicts are:
o delegation of authority,
o budget determination,
o monetary payments like wages, salary and dividend,
o side payment given to the scientist of research department in
addition to regular salary,
o slack payments – it is defined as payments to the various groups
of the coalition above than the payments required for efficient
working of the firm.
o fulfilling demand according priority,
o decentralization of decision-making.