Managerial Economics: Dr.R.RAJU Associate Professor

MANAGERIAL
ECONOMICS
Dr.R.RAJU
ASSOCIATE PROFESSOR
Introduction
OBJECTIVES OF ECONOMICS
 To get the maximum benefit from the limited resources.
 To utilize the scarce resources in order to increase human
wealth and welfare.
 To use the scarce resources to derive the greatest amount
of satisfaction.
 To provide goods and services as per the requirements of
the society.
 To make economic choices and choosing the best one(s)
from them.
 To allocate the scarce resources efficiently.
 To study and analyze the environment in which a business
firm operates.
 To resolve economic problems such as inflation,
unemployment and so on.
Definition of Managerial Economics
Douglas - “Managerial economics is .. the
application of economic principles and
methodologies to the decision-making process
within the firm or organization.”
Pappas & Hirschey - “Managerial economics applies
economic theory and methods to business and
administrative decision-making.”
Salvatore - “Managerial economics refers to the
application of economic theory and the tools of
analysis of decision science to examine how an
organisation can achieve its objectives most
effectively.”
8
Definition of Managerial Economics
Howard Davies and Pun-Lee Lam -

“It is the application of economic analysis to
business problems; it has its origin in theoretical
microeconomics.”
9
Why Managerial Economics?
 Economics in general takes a ‘positive’ and predictive approach
not prescriptive or ‘normative’
 trying to explain “what is” not what “should be”
 the main objective is to understand how a market
economy works
 Not very concerned about the descriptive realism of
assumptions: “I assume X” does not mean “I believe X to be
true”
 Some real tension if the models are used for prescription
 assume “perfect knowledge”: OK for model-building
 cannot say to a manager: “behave AS IF you had
perfect knowledge”
10
Managerial Economics
 A powerful “analytical engine”.
 A broader perspective on the firm.
 what is a firm?
 what are the firm’s overall objectives?
 what pressures drive the firm towards profit
and away from profit

 The basis for some of the more rigorous analysis of issues
in Marketing and Strategic Management.
11
Links between Managerial Economics
and Industrial Economics
In managerial economics, the emphasis is upon

the firm, the environment in which the firm
finds itself, and the decisions which individual
firms have to take.
In industrial economics (or industrial

organization), the emphasis is (or was) upon the
behavior of the whole industry, in which the firm
is simply a component.
12
Links between Managerial Economics
and Management Science
Managerial economics: is often concerned with finding optimal solutions to

decision problems.However, the primary purpose of using models is to predict
how firms will behave, not to advise them what ought to do. Managers are
assumed to find the optimal solutions for themselves and that is how
predictions are made.
Management science: is essentially concerned with techniques for the

improvement of decision-making and hence it is essentially normative;firms are
not assumed to find the optimal solutions for themselves. They are found by the
researchers who then present them as prescriptions for what the firm should do.
13
Managerial Economics with Statistics &
Mathematics
Statistics:
• Estimation of the future course of action is an essential element

in Managerial decision making.
• Data Collection, Analysis, Forecasting and Theory of
Probability provide the frame work for all such analysis and
prescriptions of Managerial economics.
Mathematics:
• Several Methodologies and concepts of Managerial Economics

are based on Mathematics.
• Managerial Economics uses Algebra, Geometry, Logarithms,
Exponentials, Determinants and Matrices.
Managerial Economics with
Operations Research & Accounting
Operations Research
 Allocation of Scarce resources.

 Business Decision Making.
 Linear Programming, Inventory, Game Theory, etc,.
Accounting
 The Cost & Revenue data that form the basis of all the
analysis and Computerizations of
 Managerial Economics are quantified through the process
of accounting.
Objectives of Managerial Economics
 To apply economic principles for solving the
problem of business.
 To apply economic theory and methodology
to business administration practice.
 To apply economic theory and methods to
business and administrative decision making.
 To apply the principles of economics to solve
managerial problems such as minimizing cost
or maximizing production and productivity.
Objectives of Managerial Economics
 To direct the utilization of scarce resources in a goal-
oriented manner.
 To facilitate forward planning and decision making.
 To examine how an organization can achieve its aims and
objectives most efficiently by evaluating various alternatives
for maximizing profit.
 To analyze and decide upon the economic issues underlying
the choice and allocation of resources.
 To build models for decision making.
 To find an optimal solution to a given managerial problem.
The Firm’s Objective
 Profit maximization
 Shareholder wealth = value of each share (V0) times
the number of shares outstanding

That is V0 × # shares outstanding
 This is the present value of expected future profits or
cash flows discounted at the shareholders required
rate of return, ke, ignoring taxes.

V0 × # shares outstanding =  t /(1+ke) t
t=1
FACTORS INFLUENCING
MANAGERIAL DECISIONS
 Economic considerations.
 Human and Behavioural considerations.
 Technological forces.
 Environmental factors.
THEORETICAL CONCEPTS
 Concepts of opportunity cost.
 Concept of marginal analysis.
 Principles of discounting.

Managerial Economics: Dr.R.RAJU Associate Professor

Uploaded by

Copyright:

Available Formats

Managerial Economics: Dr.R.RAJU Associate Professor

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Managerial Economics: Dr.R.RAJU Associate Professor

Uploaded by

Copyright:

Available Formats

MANAGERIAL

Howard Davies and Pun-Lee Lam -

 what pressures drive the firm towards profit

and away from profit

In managerial economics, the emphasis is upon

In industrial economics (or industrial

Managerial economics: is often concerned with finding optimal solutions to

Management science: is essentially concerned with techniques for the

• Estimation of the future course of action is an essential element

• Several Methodologies and concepts of Managerial Economics

 Allocation of Scarce resources.

You might also like