1

Sketch of Economy

Economy
Consumption

Production

Producer

Consumer

Supply

Demand

Maximize of Profit Maximize of Loss

Maximum of Satisfaction

Eqm(It is the Best Possible within given

Eqm (It is the Possible Not given)

Optimization

Nature e of Scope Of Managerial Economic:

What is Managerial Economic? It is a branch of economic which refer to application of tools for economic theory and decision science for optimum solution of managerial decision problem. Economic Problem / Managerial Problem: We have four basic economic problems. 1. 2. 3. 4. What How How much For Whom

Managerial Problem

Optimum Solution

Economic Theory

Decision Science

Micro Economic

Macro Economic

Mathematical

Economic

Application of Tool

3 Define Micro Economic?

It is a branch of economic in which individual economic activities are analyzed . i.e a consumers behavior, a firm behavior etc. Define Macro Economic? It is a branch of economic in which collective economic activities are analyzed . i.e national income, employment level demand , supply Etc

Road map of Managerial Economic? The basic target in managerial economic is to find optimum solution of managerial decision problems. The Following Road of map tell us how to find optimum solution of managerial problem with the help of economic theory and decision science.

Economic Theory

Micro

Macro

Mathematical Model Specification

Estimation

Evaluation

Accept

Reject

By following this road map managerial of a firm a consumer can decide that whether optimum solution is possible or not.

Relation Ship to a function area of administration: The area of business administration study include Accounts, Finance, Marketing human resource management & production. Managerial economic integrate these various area of business administration study. Theory Of Firm: The major focus the managerial economic is on firms behavior under different markets that is perfect. In managerial economic we study that who a producer maximize the present value of future profit. In Other words a producer observes the following formula: PV = 1 / (1+r) 1 + 2 (1+r) 2 . n / (1+r) n PV= Present Value =Profit r=Discount rate The basic object of the producer is not only to maximize profit in different markets but he is also concern with the maximum of present value of future series of profit.

Theory Of consumer: On consumption side, managerial economic deals with the stage by following which a consumer can maximize his satisfaction.

Optimization: Optimization mean the best possible within the given condition. In managerial economic we are on tersest in optimum solution if managerial decision problem. I.e. What to produce, How to produce, How much to produce, For Whom to Produce on consumption side we have to address to same problems. We required managerial economic on both we deal with optimization which has been summarized as under:

Optimization

Simple

Constrained

Single Variable Case

Multi Variable Case

W.R.T Equation

W.R.T In equation

Managerial Decision making progress involve following steps.

Stabling the objective of the firm. Defining the problems or obstacles faced by the firm. Indentify the range of possible solution. Selected the best solution available. Impediment the decision.

Managerial economic all these steps which are Involves in managerial decision process.

International Trade of Economic: These days world is like a global village there is a repeat movement to world the globalization of production consumption and competition. The managerial economic addresses all these accept of globalization. It deals with the optimum level sports and imports.

Managerial Economic & Internet: Internet is considering one of the major sources of research development and trade. It plays very important role indifferent management decision. Managerial economic considered this importance of internet and suggest how to utilized internet for optimum solution of managerial problems.

Conclude: One the basic of above mention effect in can be concluded that the study of managerial economic provides a guide line for optimum solution of managerial problems.

Demand
Define Demand: It is the amount of goods and services which a consumer willing to purchase and ability to purchase at a particular set a prices during a specific time period is called Demand. Demand and supply Invisible hand of economic because all basic economic decision (What, How, Hoe much, For Whom) are taken on the basic of demand and supply forces.

Latent Demand: If willingness to purchase is not back by ability to purchase it is called latent demand.

Affective Demand: If willingness to purchase is back by ability to purchase it is called affective demand.

Law of Demand
Statement Law of Demand: Other factor remains constant when price of a good of services increase, Quantity demand Contracts and when price decrease Quantity demand Expends.

Science

Mathematical

Quantity

Changes

Does Not Changes

Some times Change/ Does Not Change

Variable

Constant

Parameter

8 Variable: It is quantity is changing the variable during the decision is called variable. I.e. Age, Scores etc Constant:It is quantity Does not changing the variable during the decision is called constant. i.e. 1, 2, 3 all numerical constant.

Para mater: It is quantity some time changing or Does not changing the variable during the decision is called parameter. Types of Variable: Continuous Variable: In change in Quantity without any gap. Exp time, meter etc Discontinuous Variable: In change in Quantity with a certain gap. Exp Price, Income, Saving, Demand etc. Independent Variable: A quantity, in which the change occurs first during a discussion, is called an independent Variable.Exp Income in consumption. Dependent Variable: A quantity, in which the change occurs due to change in another value, is called dependent value .Exp Quantity Demanded. Exogenous Variable: A Quantity Which is basically variable but treated as constant. For example Consumers Income and Taste. Endogenous Variable: A Quantity which is basically variable but treated as variable. Example price of commodity.

Function
The dependence of the dependent variable over independent variable called Function. For example if y depends on x we say that y is function of x.

Types of Function: There are various types of function but at present, we shall discuss only the following two types of function: Increasing function If changes in the dependent variable and the independent variable(s) in the same direction during the discussion is called an increasing function. for example Supply Function i.e.

Qs = Quantity Supply P = Price of Commodity

Decreasing Function: If changes in the dependent variable and the independent variable(s) in the opposite direction during the discussion is called a decreasing function. For example Demand Function i.e.

Qd = f (P)

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SLOP
Change in dependent variable Due to Change independent variable is called Slope. Positive Slop:An increasing function reflects negative slop .For example Supply function. .i.e.

Qs = f (P)
Qs
Negative Slop: A decreasing function reflects negative slop. For example Demand Function.

Qd = f (P)
Qs P

Qd
Endogenous

f (P)
Exogenous

Qd = f (P, Pr, Y, T..)

Fixed (is also called Exogenous)

P = Price of goods or services itself. P r = Price of related goods. Y = Consumers Income. T = Taste Of consumers. Dependent is always Endogenous

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Demand Equation: There are two types or demand equation. General Form:-

a = Demand of the other factor which have been kept and constant and b represents induced
Demand.

a Shows autonomous Demand

b = Slop & Endogenous Demand

P 2 4 6

Qd 16 12 8

6 P 4 2

12 Qd

16

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Change in Qd

Price
.

Other Factor

Contraction

Extension

Shifting Of the Curve

Movement alone the some Curve

P 2 4 6

Qd 16 12 8

6 P 4 2 Extension

Contraction

12 Qd

16

13 Define Extension: Other than remaining the same, higher quality demanded due to decrease in price, is termed as extension of demand. Define Contraction Other than remaining the same, higher quality demanded due to increase in price, is known as extension of demand. Rise (increase) in demand: Rise in demand can be discussed under two cases: More Qd at Same price. Same Qd at mote price.

More Qd at Same price.

This is shifting of the curve. D2

P 10 10

Qd 15 20

D1 10 P 5

D1 15 Qd 20

D2