Economic analysis fundamentals (1)

MANAGERIAL ECONOMICS-A FEW FUNDAMENTALS

DR. SK LAROIYAUNIVERSITY OF DELHI

AND AMITY BUSINESS SCHOOL

MANAGERIAL ECONOMICS -

WHY IT IS A MUST FOR A PRACTICING MANAGER ?

ECONOMIC ANALYSIS

MANAGERIAL ECONOMICS

BUSINESS ECONOMICS

MANAGERIAL ECONOMICS

IS THE INTEGRATION OF ECONOMIC THEORY WITH

BUSINESS PRACTICE

FOR

THE PURPOSE OF

DECISION MAKING AND FORWARD PLANNING

BY THE MANAGEMENT

BASIC INGREDIENTS:

ECONOMICS PROVIDES A SET OF CONCEPTS

THESE CONCEPTS FURNISH THE MANAGER WITH

TOOLS AND TECHNIQUES OF ANALYSIS

ECONOMIC ANALYSIS IS AN AID

TO

UNDERSTAND

BUSINESS PRACTICES

IN A GIVEN ENVIRONMENT AND THEREBY MAKE BUSINESS DECISIONS WHICH ARE PRIMARILY ECONOMIC IN NATURE

DECISION MAKING IS A BASIC FUNCTION OF MANAGEMENT

ECONOMICS THEREFORE IS A VALUABLE INPUT

IN A DECISION MAKING PROCESS OF MANAGEMENT

SIX STEPS TO DECISION MAKING

• DEFINE THE PROBLEM

• DETERMINE THE OBJECTIVES

• EXPLORE THE OBJECTIVES

• PREDICT THE CONSEQUENCES

• MAKE A CHOICE

• PERFORM SENSITIVITY ANALYSIS

WHAT IS ECONOMICS?

• OBJECTIVE FUNCTION

• LIMITED RESOURCES

• ALTERNATIVE USES

• OPTIMAL ALLOCATION OF RESOURCES

• FEASIBILITY AND OPTIMALITY

MICRO ECONOMIC ANALYSIS

MACRO ECONOMIC ANALYSIS

ECONOMIC ANALYSIS-

• STATIC

• COMPARATIVE STATIC

• DYNAMIC

ECONOMIC ANALYSIS IS THE BASIS OF ECONOMIC POLICY

BUSINESS DECISIONS:

ESSENCE OF AN ECONOMIC DECISION IS THE

SOLUTION TO AN ECONOMIC PROBLEM

PROBLEM OF CHOICE

ECONOMIC DECISION MAKING

NATURE OF DECISIONS:

• INTUITIVE AND SCIENTIFIC

• STRATEGIC AND TACTICAL

• DECISIONS UNDER VARYING DEGREES OF

UNCERTAINTY

MANAGEMENT FUNCTION THAT INVOLVES STRATEGIC DECISIONS MAKING, IS CALLED COORDINATING MANAGEMENT

MANAGEMENT FUNCTION THAT INVOLVES ROUTINE WORK IS CALLED SUPERVISORY MANAGEMENT

SCOPE AND STRUCTURE OF ECONOMIC ANALYSIS:

• DEMAND ANALYSIS-

-STRUCTURE OF DEMAND –

-SENSITIVITY OF DEMAND TO VARIOUS PARAMETERS SUCH AS PRODUCT PRICE, CONSUMERS’ INCOME, PRICES OF OTHER PRODUCTS, ADVERTISEMENTS ETC.

-DEMAND FORECASTING

• COST ANALYSIS

• PRODUCTION ANALYSIS

• OBJECTIVES OF A BUSINESS FIRM

• PRICING AND OUT PUT DECISIONS UNDER

ALTERNATIVE MARKET STRUCTURES

• INVESTMENT ANALYSIS

• ECONOMIC POLICY FRAMEWORK

• NATIONAL INCOME AGGREGATES

• BUSINESS ENVIRONMENT

• MODELS OF INCOME DETERMINATION

• MONEY MARKET

• CAPITAL MARKET

• FOREIGN EXCHANGE MARKET

• FISCAL AND MONETARY POLICIES

FUNDAMENTAL CONCEPTS:

• FUNCTIONAL RELATIONSHIPS

• DERIVATIVES AND RELATED CONCEPTS

• MARGINAL ANALYSIS

• CONCEPT OF TIME PERSPECTIVE

• OPPORTUNITY COST

• EQUILIBRIUM- STABLE AND UNSTABLE

• DISCOUNTING PRINCIPLE

• SCARCITY AND CHOICE

ROLE OF A BUSINESS ECONOMIST:

• NATIONAL AND INTERNATIONAL LEVEL STUDIES

• INDUSTRY LEVEL STUDIES

• PRODUCT LINE RESEARCH

• SALES FORECASTING

• ECONOMIC ANALYSIS OF COMPETING COMPANIES

• PRICING PROBLEMS OF INDUSTRY

• CAPITAL PROJECTS

• PRODUCTION PROGRAMS AND ANALYSIS

• INVESTMENT ANALYSIS

• ADVICE ON TRADE, FOREIGN EXCHANGE

• ANALYSIS OF PREVAILING ECONOMIC TRENDS