Scribd
Upload
68 views14 pages

Nature Scope of Managerial Economics

Managerial economics applies economic theory and methodology to managerial decision-making in businesses. It helps managers evaluate alternatives and make efficient choices given scarce resources. The document discusses key concepts in managerial economics including the theory of the firm, profit maximization and measurement, and sources of variation in profits among firms. The goal of managerial economics is to show how economic analysis can inform sound business planning and decision-making.

Uploaded by

Liana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
68 views14 pages

Nature Scope of Managerial Economics

Managerial economics applies economic theory and methodology to managerial decision-making in businesses. It helps managers evaluate alternatives and make efficient choices given scarce resources. The document discusses key concepts in managerial economics including the theory of the firm, profit maximization and measurement, and sources of variation in profits among firms. The goal of managerial economics is to show how economic analysis can inform sound business planning and decision-making.

Uploaded by

Liana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 14

NATURE & SCOPE OF

MANAGERIAL
ECONOMICS
For classroom discussion purposes only. Not for citation.
WHAT IS ECONOMICS?
IS THE STUDY OF HOW SOCIETY
CHOOSES TO USE PRODUCTIVE
RESOURCES THAT HAVE ALTERNATIVE
USES, TO PRODUCE COMMODITIES OF
VARIOUS KINDS, AND DISTRIBUTE THEM
AMONG DIFFERENT GROUPS.
WHAT IS ECONOMICS?
Economics basically comes from the Greek word
“Oikonomicus” , incorporated by the Greek
philosopher Xenophon which means “State
Management”

But later, change by the


Classical Economist into
“Household Management”
PURPOSE OF STUDYING ECONOMICS?

“EFFICIENT USE AND UTILIZATION OF


SCARCE RESOURCES”

In a business setting, scarcity cannot be


avoided, thus firms must be rational in
allocating its resources properly and at its
optimum level to come up a maximum level
of production.
WHAT IS MANAGEMENT?
“The art of getting things done through people.”
- Mary Parker Follet

“A process consisting of planning, organizing,


actuating and controlling performed to determine
and accomplish the objectives by the use of people
and resources.” - George R. Terry
WHAT IS MANAGEMENT?
 Is the process of coordinating people and other
resources to achieve the goals of the organization.
 Prime Functions:

Decision Making and Forward Planning


Decision Making – is the act of choosing one alternative
from among sets of alternatives.

Forward Planning – establishing plans for the future.


WHAT IS MANAGERIAL ECONOMICS?

 Is the application of economic theory and


methodology to decision making process by
the management of the business firms.

 It is concerned with decision making at the


level of firm.

 Its purpose is to show how economic analysis


can be used in formulating business
planning.
How Managerial Economics Useful?

It is useful in:
 Evaluating choice alternatives

 Recognize how economic forces affects organizations


and describe the economic consequences of
managerial behavior.
 Identifies ways to achieve goals efficiently.
 Making the best decision
 Establish appropriate decision rules
 Offers a comprehensive application of economic
theory and methodology to management decision-
making.
Theory of the Firm
 Why firms exists?
 Because they are useful.
 Because they provide social welfare (in the context of
its needs)
 Conducts Corporate Social Responsibility
 To earn profits.
 Amidst of it, it faces or creates problems such as:
 When economy is unconstrained
 Economies of scale barriers
 Spill over effects
Theory of the Firm

 Profit Maximization: Short-Run or Long-Run?


 Long-Run Perspective: Expected Value
Maximization
 Is the optimization of profits in light of uncertainty and
the time value of money.
 Value of the firm is the present value of the firm’s
expected future net cash flows.
Theory of the Firm
 Constraints of Firms:
 Limited availability of essential inputs.
 Limitations on the amount of investment funds
available for a particular project.
 Contractual requirements.
 Legal restrictions
 Minimum wages
 Health and Safety standards
 Fair pricing and marketing strategies
Limitation of the Theory of the Firm: A Firm’s
Dilemma

 Optimize or Satisfice?
 Models involved:
 Size or growth maximization is the assumed primary
objective of management.
 Models that argue that managers are most concerned
with their own personal utility or welfare
maximization.
 Models that treat firm as a collection of individuals
with widely divergent goals rather than as a single,
identifiable unit.
Profit Measurement
 Profit
- defined as the residual of sales revenue minus the
explicit (actual) costs of doing business.
 Business and Economic (Normal) Profit
 Business Profit
 Business’s common description about profit.
 Economic Profit
 Business profit minus the implicit costs
Theories on Profit: Why do Profits Vary among
Firms?

 Disequilibrium Profit Theories


 Frictional Profit Theory
 Monopoly Profit Theory

 Compensatory Profit Theories


 Innovation Profit Theory
 Compensatory Profit Theory

What is the ROLE of Profit in the Economy?

You might also like