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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.
http://wiki/Communicationhttp://wiki/Persuadehttp://wiki/Traditional_mediahttp://wiki/Mass_mediahttp://wiki/Newspaperhttp://wiki/Magazineshttp://wiki/Television_commercialhttp://wiki/Radio_advertisementhttp://wiki/Radio_advertisementhttp://wiki/Outdoor_advertisinghttp://wiki/Direct_mailhttp://wiki/New_mediahttp://wiki/Websitehttp://wiki/Text_messageshttp://wiki/Text_messageshttp://wiki/Text_messageshttp://wiki/Text_messageshttp://wiki/Websitehttp://wiki/New_mediahttp://wiki/New_mediahttp://wiki/New_mediahttp://wiki/Direct_mailhttp://wiki/Direct_mailhttp://wiki/Direct_mailhttp://wiki/Outdoor_advertisinghttp://wiki/Outdoor_advertisinghttp://wiki/Outdoor_advertisinghttp://wiki/Radio_advertisementhttp://wiki/Radio_advertisementhttp://wiki/Radio_advertisementhttp://wiki/Television_commercialhttp://wiki/Television_commercialhttp://wiki/Television_commercialhttp://wiki/Magazineshttp://wiki/Newspaperhttp://wiki/Mass_mediahttp://wiki/Mass_mediahttp://wiki/Mass_mediahttp://wiki/Traditional_mediahttp://wiki/Traditional_mediahttp://wiki/Traditional_mediahttp://wiki/Persuadehttp://wiki/Communication8/3/2019 ME module - 1
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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