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INTRODUCTION

Managerial economics refers to the

integration of economic theory withbusiness practice. It deals with applicationof economics principle to the problems of

business firms it modifies or reformulatesalready existing economics models to suitthe specific problem of the business firms.It helps to solve real complex business

problems using other related branches.

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Definition

According to Prof. Joel Dean The purpose ofManagerial Economics is to show howeconomic analysis can be used informulating business policies.

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NATURE OF MANAGERIALECONOMICS

It aims in providing help in making decisions by the firmsas it draws heavily on the propositions of macroeconomics.

It assists the firm in forecasting as macro economicsstudies the economy at the aggregate level. It also helpsto identify the level of demand at some future pointbased on the relationship between level of nationalincome and demand for a particular product.

It helps on those propositions which are likely to beuseful to the management, as decision has to be madewithout delay. Besides more accurate forecast may not

justified on cost considerations

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Managerial economics prescriptive in nature andcharacter. It recommends that which should be doneon alternative conditions.

Managerial economics to an extent is an appliedscience Ex. Empirical study may suggest that for everyone percent raise in expenditure on advertising thedemand for the product shall increase by 0.5%.

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Scope of Managerial Economics

Demand Analysis and ForecastingCost and Production AnalysisInventory ManagementAdvertisingMarket Structure and Pricing Policies

Resource AllocationCapital BudgetingInvestment AnalysisRisk and Uncertainty Analysis

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Demand analysis and forecasting

Demand analysis and forecasting is the process

estimation of quantity of a product or service thatwill be demanded by the customer in the future.Demand forecasting is carried out using both,informal methods, like educated guesses or

quantitative methods that involve the use ofhistorical data or existing data from the testmarkets. Demand forecasting helps in theformulation of pricing strategies, estimation of

future product capacity and making crucialdecisions relating to the entry or exit from newmarket.

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Cost and Production Analysis

In Economics, cost of productionhas aspecial meaning. It is all of the payments orexpenditures necessary to obtain the

factors of production of land, labor, capitaland management required to produce acommodity. It represents money costs

which we want to incur in order to acquirethe factors of production".

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Inventory ManagementInventory management is an integral part of a successful business. Inventories

typically consist of goods, raw materials and finished products. Each of these

elements translates into money for the business owner. The key to profitability is a

carefully balanced inventory.

Properly managing supplies requires the ability to create a balance. Part of the

balancing approach should include aspects of inventories that many business

owners fail to recognize. Issues that may be underestimated include: Storage cost

Insurance Taxes Ordering dilemmas Pricing

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Advertising

Advertising is a form of communication used to persuade an

audience (viewers, readers or listeners) to take some action with

respect to products, ideas, or services. Most commonly, the

desired result is to drive consumer behavior with respect to acommercial offering, although political and ideological

advertising is also common. Advertising messages viewed via

various traditional media; including mass media such as

newspaper, magazines, television commercial adds, radio

advertisement, outdoor advertising or direct mail; or new media

such as websites and text messages.

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Market Structure and PricingPolicies

Managerial Economics helps to clear surplus and

excess demand to bring market equilibrium as

there are continuous changes in market. Success

of business firm depends on correctness of pricedecisions. Price theory works according to the

nature of the market depending on the number of

sellers, demand conditions etc.

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Resource Allocation

Managerial economics with the help

of advance tools such as linear

programming are used to arrive at thebest course of action for the

maximum use of the available

resource and its substitutes.

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Capital Budgeting

The process in which a business

determines whether projects such asbuilding a new plant or investing in a long-

term venture are worth pursuing.

Oftentimes, a prospective project's lifetime

cash inflows and outflows are assessed inorder to determine whether the returns

generated meet a sufficient target

benchmark.

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Investment Analysis

It involves planning and control capital

expenditure. Whether or not to invest

funds in purchase of assets or otherresources in an attempt to make profit and

how to choose among completing uses of

funds. Managerial economics help in

analysis and decision making on theinvestment of funds.

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Risk and Uncertainty Analysis

As business firm have to operate under

conditions of risk and uncertainty both

decision making and forward planningbecomes difficult. Hence managerial

economics helps the business firm in

decision making and formulating plans on

the basis of past data, current informationand future prediction.

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Role of Managerial Economist

in Decision making

1. Demand estimation and forecasting.

2. Preparation of business sales and

forecast.3. Analysis of market survey to determine

the nature of market and extent of

competition.

4. Analysis the issues and problems ofconcerned industry.

5. Assisting the business planning of the

business firm.

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6. Discovering new possible fields of

business endeavor and its cost-benefit

analysis.

7. Advising on prices, investment and

capital budgeting policies.

8. Evaluation of capital budgeting, etc.,

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Management Decision

Problems

1. Product Price and Output

2. Make or Buy3. Production Technique

4. Internet Strategy

5. Advertising Media and Intensity

6. Investment and Financing

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The decision-making process involves thefollowing steps:

Define the problem.

Identify limiting factors.Develop potential alternatives.

Analyze the alternatives.

Select the best alternative.

Implement the decision.Establish a control and evaluation system.

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Micro and Macro economics

Micro Economics:

Micro stands for millionth part or justa small part of the whole. In micro

economics we analyze the part of a unit of

the whole system. Ex. The behavior of an

individual, firm or industry in the nationaleconomy. It is thus a study of a particular

unit rather than all the units combined.

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Micro Economics

1. Product pricing

2. Consumer behavior

3. Factor Pricing4. Economic conditions of a section

of the people.

5. Study of firms

6. Location of an industry.

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Macro economics

It is aggregative economics wherein

the overall conditions of the economy

such as total production, totalconsumption, total saving and total

investments are studied. It is the

study of overall economic

development as a whole rather than

its individual parts. It includes

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Macro economics

1. National income and output

2. General price level

3. Balance of trade and payments4. External value of money

5. Saving and investment

6. Employment and economic growth

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Thank you