MANAGERIAL ECONOMICS It refers to the study of small unit of
the society’s. ex: family, household,
Purpose of Managerial Economics is to
person) consumption, spending,
improve profitability
production and investment.
Cost
Macroeconomics
Demand
Profit macro means big.
Competition It refers to the study of large unit of
Pricing the society ex: banks, businesses,
Entry Strategy firms, government, other countries)
Market Protection Strategy consumption, spending, production
and investment.
Approaches fro managerial policy The study of the whole economy of the
making and pricing policies – taxes country base on its measurement of its
and tariffs production, income and spending
Concerned with the ways which commonly called gross national
business and policy makers should product GDP and GNP. It also includes
make decisions the decision of implementing fiscal and
The nature of their decision – making monetary laws for the whole economy.
process analyzed and motivation of the
Managerial Economics
firms.
The major role of ME is profit and Helps managers recognize how
recognize economic forces affect
affect organizations and describes the
Relationship between Managerial &
economic consequences of managerial
Economics
behavior
Provides link between economic Also links economic concepts data and
theory and decision sciences in the quantitative methods to develop vital
analysis of managerial decision tools for managerial decision making
making. Discipline that combines economic
theory with managerial practice
ECONOMICS
Tries to bridge the gap between the
- Came from the Greek word problems of logic that intrigue
“oikonomia” that means management of economic theorist and problems of
household expenditures. This means that policy that plague practical managers
economics refers to the operation of Helps managers arrive at a set of
household transactions. operating rules that aid in the efficient
use of scarce human and capital and
resources
It is relevant to the management of
- It deals with how to satisfy the
government policies, cooperatives,
unlimited wants and needs of human with
schools, hospitals, museums, and
the limited or scarce resource we have.
similar not-for-profit institutions as it s
Two branches of Economics to management of profit-oriented
businesses
Microeconomics
Nature of Managerial Economics
micro means small.
Management
- Guidance, leadership and control of a. Type of goods and services likely
the efforts of a group of people purchased in today and in the
towards some common objective future
- Creation and maintenance of an b. Factors influencing the
internal notes where groups can consumption of particular good or
perform efficiently and effectively service
c. Effect of change in these factors on
Management is:
the demand
Coordination
An activity or an ongoing process
A purposive process Scope of Managerial Economics
Art of getting things done for other
Four groups of problem in decision making
people
and forward planning
Economics
Resource allocation
- Primarily engaged in analyzing and Inventory and queuing problem
providing answers to scarcity Pricing problems
Investment problems
2 fundamental facts of life
Resource allocation
a. Human wants are unlimited
b. Economic resources to satisfy - Scarce resources have to be used
human demands are limited with utmost efficiency to get
optimal results. These include
Three Choice Problems of an
production programming, problem
Economy
of transportation. Etc.
What to produce
Inventory and queuing problem
- Methods of demand forecasting
help in deciding the quantity of - Involve decisions about holding of
good or service to be produced. optimal levels of stocks of raw
How to produce materials and finished goods over a
- Selection of inputs and techniques period
of production - Considering demand and supply
- Decisions arrest made with regard conditions
to the purchase of items ranging - Decisions in order to balance the
from raw materials to capital business lost by not undertaking
equipment such activities (add machine, extra
For whom it should be produced? labor)
- An analysis market structure
Pricing problems
explains how price and output
decisions are taken under market - Fixing prices
forms. - Decisions regarding various
methods of pricing to be adopted
What to produce and how to produce?
- Selection of goods and services for Investment problems
production. Analyzes behavior with:
- Forward planning
- Problems of allocating scarce
resources overtime
- Eg. Investing in new plants, how Utility Analysis
much to invest, sources of funds,
Total Unity
etc.
- All the utilities derived by
THEORY OF CONSUMER BEHAVIOR
consumers from all the units of
- A consumer attempts to allocate commodity
his/her limited money income
Marginal Utility
among available goods and
services so as to his/her utility - It is an extra or additional units
(satisfaction) have obtain
-
Analysis formula
Utility
- TUI = MU
- Satisfaction of wants and needs
obtained from consumption or use The law of Diminishing Marginal Utility
of goods and services
- States that the satisfaction derived
- Quality that satisfy human needs
from successive units of a goods
will diminish as total consumption
Economists often use the
of the goods increases
term utility as a hypothetical
quantitative value for satisfaction that
a consumer receives from a pattern of
consumption.
If a consumer were to receive one
more unit of some good or service, the
resulting increase in their utility is
called the marginal utility of the good.
The substitution effect is the
consumer’s response to a changing
price to restore balance in the ratios of
marginal utility to price.
As the result of price changes and
substitution, the consumer’s overall
utility may increase or decrease.
This equivalent change in purchasing
power is called the income effect.
Features of Utility
Subjective or Psychological
Relative Concept
No moral consideration
No object of measurement
Different from usefulness
Different from pleasure
Depends on wants / inventory wants
Basis of demands
Utility is multi purpose
Utility is intangible
