MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Program Semester

: MBA :I

Subject Code
Subject Name Unit Number Unit Title

: MB0042
: Managerial Economics :1 : Meaning & Importance of Managerial Economics

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Meaning & Importance of Managerial Economics

Objectives:
To understand the emergence and special features of managerial economics. To know the scope of Managerial Economics in the context of business. To analyze decision making process and follow how it is applied in day-to-day business.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Lecture Outline

Introduction Meaning Features of Managerial Economics Scope of Managerial Economics Importance of the Study of Managerial Economics Two Major Functions of a Managerial Economist Summary Check Your Learning Activity

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Introduction

Managerial Economics also called Business Economics is the application of

economic theory and methodology to business.

Managerial Economics helps answer the questions like: What to produce? How to produce?

For whom to produce?

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Meaning

Managerial economics deals with various economic theories, principles, concepts and techniques to solve business and management problems.

It deals with practical application of economic theory and methodology to decisionmaking problems faced by private, public and non-profit making organizations.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Features of Managerial Economics

It is realistic, pragmatic and highlights on practical application of economic theories.

It is conceptual and metrical and provides measurement of various economic variables and their interrelationships.

It uses macro economic concepts to understand and adjust its policies to environment in which firm operates.

It gives importance to study of non-economic variables having implications of economic performance of the firm.

It provides logic and methodology to find answers and not the answers themselves.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Scope of Managerial Economics

Objectives of a Firm: there are multiple objectives of a firm determined by various economic, non economic and national factors.

Demand Analysis and Forecasting :What ,Where, For whom to produce? Etc.
Production and Cost Analysis : deals with production function, laws of returns, returns to scale, economies of scale, study of cost concepts, their classification, cost-output relationship in short run and long run.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Scope of Managerial Economics

Pricing Decisions, Policies and Practices : fixing prices of goods and services. Profit Management :Success or failure of a firm is measured by the amount of

profit it is able to earn in a competitive market. Profit planning, profit

forecasting Break Even Point etc. comes under profit management. Capital Management : Analyzing the cost of employing capital and the rate of return expected from each and every project. It is cost-benefit analysis.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Scope of Managerial Economics

Linear Programming : It offers actual numerical solution to the problems of making optimum choices. It involves maximization of profits or minimization of costs.

Theory of Games : explains that under the conditions of conflicts and uncertainty, a firm or an individual faces problem similar to the player of any game.

Market Structure and Conditions : number of sellers and buyers, nature, extent and degree of competition etc determines the nature of policies to be adopted by a firm in market.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Scope of Managerial Economics

Strategic Planning : firm sets certain long-term goals and objectives and selects the strategy to achieve the same.

Other Areas : macro economic variables, government policies, impact of international changes, influence of socio-political, cultural and other external forces on business operations.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Importance of the Study of ME

It gives guidance for identification of key variables in decision-making process. It helps in identifying business and managerial problems, their causes and suggests policies and programs to overcome them.

It helps business executives to become more responsive, realistic and competent to face the ever changing challenges in modern business world.

It helps in the optimum use of scarce resources of a firm to maximize its profits. It helps in achieving objectives of a firm.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Two Major Functions of Managerial Economist

A Managerial Economist is a specialist and an expert in analyzing and finding answers to business and managerial problems. Decision-making : select best course of action which maximizes economic benefits and minimizes the use of scarce resources of a firm. Forward planning : planning implies planning in advance for future.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Summary

Managerial economics brings together economic theory and business practice.

It assists in applying various economic theories and principles to find solutions to business and management problems.

The concepts of decision- making and forward planning are the two basic functions of a managerial economist.

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Check Your Learning

1. Managerial Economics is the integration of ________ with ____ for solving business and management problems. Ans. Economic theory, Business Practice 2. Basic objective of a firm today is ________. Ans. Profit optimization 3. Managerial Economics is basically a branch of __ economics. Ans. Micro 4. Two major functions of a Managerial Economist are ____ and ______. Ans. Decision-making, Forward Planning

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MB0042-Managerial Economics Unit-1 Meaning & Importance of Managerial Economics

Activity

Identify a firm and see whether Managerial Economics serve as a link between traditional economics and decision sciences for business

decision making of the chosen firm .

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