7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

Search!

Search the site

MBA Study Material - Managerial

Economics- Introduction
By: Ramu

Magham
comment

At: 00:18

In: Education, study

material

MANAGERIALECONOMICS

Introduction:
ManagerialEconomicsiseconomicsappliedindecisionmaking.Itservesasa
link between abstract theory and managerial practice. Managerial Economics
involves analysis of allocation of the resources available to firm or a unit of
management among the activities of that unit. Managerial Economics is by
nature goal oriented and prescriptive and aims at maximum achievement of
objectives.

Definitions:
Managerial Economics is the integration of economic theory with business
practicesforthepurposeoffacilitatingdecisionmakingandforwardplanning
bymanagement
Spencer
and
Siegelman
Managerial Economics is the use of economic modes of thought to analyze
businesssituation.
M.C.Nair
andM.C.
Meriam
The application of economic theory and methodology to business
administrationpractice.
Brigham
and
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

1/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

Pappas
In a sense, Managerial Economics provides a link between traditional
economicsandthedecisionsciencesformanagerialdecisionmakingasshown
inFig1.1.

DefineYourGoalsClearlySoThatOthersCanSeeThemAsYouDo

NatureofManagerialEconomics:ManagerialEconomicsisconcernedwiththe
businessfirmandeconomicproblemsthateverybusinessmanagementneedto
solve.

MacroEconomicConditions:
Weknowthatthedecisionsofthefirmaremadealmostalwayswithinthebroad
frameworkofeconomicenvironmentwithinthefirmoperates,knownasMacro
Economicconditions.Thiskindofunderstandinghelpstheexecutivetoadjust
outforcesoverwhichhasnocontrolbuttheyplayavitalroleinwelfareofthe
concern, such as the business cycles, government policy regarding prices and
taxation,foreigntradeandantimonopoly.

MicroEconomicAnalysis:
The study of an individual or a firm is called Micro Economics. Micro
EconomicsdealswiththebehaviorandproblemsofsingleindividualofMicro
Organization. Managerial Economics is concerned with finding the solutions
fordifferentmanagerialproblemsofaparticularfirm.Thusitismorecloseto
microeconomics.

PositiveV/SNormativeStatements:
A Normative Statement usually includes or implies the words ought or
should. They reflect peoples moral attitudes and are expressions of what a
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

2/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

team of people ought to do. It deals with statement such as Government of

India should open up the economy. Such statements are based on value
judgmentsandexpressviewsofwhatisGoodorbad,rightorwrong.

ScopeOfManagerialEconomics:
The main focus in managerial economics is to find an optimal solution to a
givenmanagerialproblems.Theproblemmayrelatetoproduction,reductionor
controlofcosts,determinationofpriceofagivenproductorservice,makeor
buy decisions, inventory decisions, capital management or profit planning and
investment decisions or human resource management. While all these are the
problems, the managerial economist make use of the concepts, tools and
techniquesofeconomicsandotherrelateddisciplinestofindanoptimalsolution
toagivenmanagerialproblem.Thisconceptisexplainedinthebelowfigure.

The following aspects may be said to generally fall under Managerial

Economics.

DemandAnalysis:
A business firm is an economic organism which transforms productive
resourcesintogoodsthataretobesoldinamarket.Theanalysisofademand
foragivenproductandserviceisthefirsttaskofmanagerialeconomist.Before
production schedules can be prepared and resources employed, a forecast of
futuresalesisessential.Thisforecastcanalsoserveasaguidetomanagement
for maintaining or strengthening the market position and enlarging profits.
Demand Analysis helps in identify the various factors influencing the demand
for a firms product and thus provides guidelines to manipulating demand.
Demand analysis and forecasting, therefore, is essential for business planning
andoccupiesastrategicplaceinManagerialEconomics.

CostAnalysis:
A study of economic costs, combined with the data drawn from the firms
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

3/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

accounting records, can yield significant cost estimates that are useful for
managerial decisions. The factors causing variations in costs must be
recognizedandallowedforifmanagementistoarriveatcostestimateswhich
are significant for planning purpose. The chief topics covered under cost
analysisarecostconceptandclassifications,costoutputrelationship,economies
anddiseconomiesofscaleandcostcontrolandcostreduction.

PricingDecisions:
Pricing is very important area of managerial economics. In fact, price is the
source of the revenue of a firm and as such the success of a business firm
largelydependsonthecorrectnessofthepricedeterminationinvariousmarket
forms,pricing,methods,differentialpricing,productlinepricingandpricefore
costing.

ProductionAndSupplyAnalysis:
ProductionAnalysisisnarrowerinscopethatcostanalysisproductionAnalysis
frequently proceed in physical term while cost analysis proceeds in monetary
terms.Productionanalysismainlydealswithdifferentproductionfunctionsand
theirmanagerialuse.
Supplyanalysisdealswithvariousaspectsofsupplyofacommodity.Certain
importantaspectsofsupplyanalysisare:supplyschedule,curvesandfunction,
law of supply and its limitations. Elasticity of supply and factors influencing
supply.

CapitalManagement:
Amongthevariousproblemsofabusiness,themostcomplexanddifficultfor
the business manager are likely to be those relating to the firms capital
investments. Relatively large sums are involved and the problems are so
complexthattheirdisposalnotonlyrequiresconsideratetimeandlaborbutisa
matterfortopleveldecisions.Brieflycapitalmanagementimpliesplanningand
control of capital expenditure. The main topics dealt with are cost of capital,
rateofreturnandselectionorprojects.

Conclusion:
The various aspects outlined above represent the major uncertainties which a
business firm has to reckon with, viz, demand uncertainty, cost uncertainty,
priceuncertainty,profituncertaintyandcapitaluncertainty.
We can therefore, conclude that the subject matter or managerial economics
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

4/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

consists of applying economic principles and concepts towards adjusting with

variousuncertaintiesfacedbyabusinessfirm.

ManagerialEconomicsLinkagesWithOtherDisciplines:
Managerial Economics is closely linked with money other disciplines such as
economics,accountancy,mathematics,statistics,operationresearch,psychology
andorganizationalbehavior.
Letusseelinkagesindetail:

Economics:
ManagerialEconomicsistheoffshootofeconomicsandhencetheconceptsof
managerial economics are basically economic concepts. If economics deals
with theoretical concepts, managerial economics is the application of these in
real life. In the process of addressing various managerial problems, several
empirically estimated functions such as demand function, cost function, revenue
functionandsoonareextensivelyused.

OperationResearch:
Decisionmaking is the main focus in Operation Research and Managerial
Economics. If Managerial Economics focuses on problems of decision
makingOperationResearchFocusonsolvingtheManagerialproblems.
The Operation Research Models such as linear programming, transportation,
optimization techniques and so on, are extensively used in solving the
managerialproblems.

Mathematics:
Managerial Economist is concerned with estimating and predicting. The
relevanteconomicfactorsfor decisionmakingandforewordplanning. Inthis
process, he extensively makes use of the tools and techniques of mathematics
suchasalgebra,calculus,vectors,inputoutputtablessuchother.

Statistics:
Statisticsdealswithdifferenttechniquesusefultoanalyzethecauseandeffect
relationships in a given variable or phenomenon. It also empowers the
managers to deal with the situations of risk and uncertainty through its
techniques such as probability. The business environment for the managerial
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

5/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

economist is full of risk and uncertainty and extensively makes use of the
statistical techniques such as averages, measures of dispersion, correlation,
regressiontimeseries,andprobabilityandsoon.Thesetechniquesenhancethe
relevanceoftheconceptualbaseinmanagerialeconomics.

Accountancy:
The accountant provides accounting information relating to costs, revenues,
receivables, payables, profit and loss etc. and this forms the basis for the
managerial economist to act upon. This forms authentic source of data about
the performance of the firm. The main objective of accounting function is to
record, classify and interpret the given accounting data. The managerial
economist profusely depends upon accounting data for decisionmaking and
forewordplanning.

Psychology:
Consumer psychology is the basis on which managerial economist acts upon.
How the customers react to a given change in price or supply and its
consequential effect on demand / profits is the main focus of study in
managerialeconomics.Weassumethatthebehavioroftheconsumerisalways
rational which in reality is not so. Psychology contributes towards
understanding the behavioral implications, attitude and motivations of each of
themicroeconomicsvariablessuchasconsumer,supplierinvestorworkeroran
employee.

OrganizationalBehavior:
OrganizationBehaviorenablesthemanagerialeconomisttostudyanddevelop
behavioralmodelsofthefirmintegratingthemanagerisbehaviorwiththatof
the owner. This further analysis the economic rationality of the firm in a
focusedway.

TheRolesAndResponsibilitiesOfManagerialEconomist:

A Managerial Economist can play a very important role by assisting the

management in using the increasingly specialized skills and sophisticated
techniques which are required to solve the difficult problems of successful
decisionmakingandforewordplanning.
Thefunctionsofamanagerialeconomistaredividedintotwotypes
1.Specifictasks
2.Generaltasks
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

6/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

1.SpecificTasks
Thesearesomespecificfunctionsperformedbythemanagerialeconomist.
Salesforecasting
IndividualmarkedResearch
EconomicAnalysisforcompetingcompanies
PricingproblemsofIndustry
HOME
Capitalprojects
Productionprogrammed
SecurityInvestmentAnalysisandForecast
Adviceontradeandpublicrelations
Adviseonforeignexchange
EconomicAnalysisofagriculture
Analysisofunderdevelopedeconomics
EnvironmentalScanning.

2.GeneralTasks
One of the principle objectives of any management is to determine the key
factors which influence the business over a period of time. This function is
performed by managerial economist. In general, the following factors will
influencethebusinessoveraperiodoftime.Thesefactorscanbedividedinto
twocategories.
(i)InternalFactors
(ii)ExternalFactors

(I)InternalFactors:
Internal Factors are those over which the management has control such as
determinationoflevelactivity,expansionorcontractionofbusiness,investment
and etc. The managerial economist helps the management in the following
relevantquestions.
Whatwillbethereasonablesalesandprofitbudgetfortheyear?
What will be the most appropriate production schedules and
inventorypoliciesforthenextfiveorsixmonths?
Whatchangesinwageandpricepoliciesshouldbemadenow?
Howmuchcashwillbeavailablenextmonthandhowmuchshould
beinvested?

http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

7/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

(Ii)ExternalFactors:
External factors are factors which generally operate outside the firm and the
firmhasnocontroloverthem.Themanagerialeconomistisresponsibletoknow
and communicate with management that how the fallowing factors will
influenceonbusiness

1. Prospectsofdemandfortheproduct.
2. Themanagerialeconomistalsotriestofindoutifthereisanything
whichinfluencingtheinputcostofthefirm

3. Studyofmarketconditionsofrawmaterialsandfinishedproducts
4. Managerialeconomistcanalsohelpintheexpansionofthefirms
shareinthemarket

ResponsibilitiesOfAManagerialEconomist:
Asmentionedabove,managerialeconomisthasanimportantroletoplay.Let
usnowfindouthowbestamanagerialeconomistcanservethemanagement.In
otherwards,whataretheresponsibilitiestowardshisjob.
Responsibilities:
Sincethemostimportantobjectiveofafirmistomaximizeprofits
oninvestment,themanagerialeconomistmustalsohelpinachieving
thisgoal.
Themostimportantresponsibilityofamanagerialeconomististo
makeasaccurateforecastsaspossible.
Amanagerialeconomistcaliberisgenerallyjudgedbyhisabilityto
obtainnecessaryinformationquicklybypersonalcontactsrather
thanbylengthyresearchfromeitherthereadilyavailablesourcesor
obscurereferencesources.

Finally,thecontributionofamanagerialeconomistwillbeadequateonlywhen
heisamemberoffullstatusinthebusinessteam.Hemustbereadytotakeup
challengingtasks.Wheneversomespecialassignmentscometohim,heshould
bereadytoundertakethemwithfullseriousness.

HeProfitswhoservesbest.

Prepared&SponsoredBy
http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

8/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

Mr.M.Jakkaraiah
M.B.A.,M.C.A.,APSET.

Tweet

Like 6

WRITTEN BY RAMU MAGHAM

Ramu Magham is an English Language
Teacher who drives his students crazy with
trending technologies and current
happenings.

What's Related?

MBA Study Material Production and...

MBA Study Material Managerial eco...

MBA Study Material Managerial Eco...

http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

9/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

NEWER POST

OLDER

1 comments:

Saurav Kumar

27 January 2016 at 09:22

very useful 4 us
Reply

Enter your comment...

Commentas:

GoogleAccount

Publish

Preview

Labels
Meelo evaru Koteeswarudu
English quizzes
Trending

Current happenings

Education

Technology

(14)
(7)

(32)

(7)

General Knowledge
(4)

(29)

My musings

(6)
(3)

Google+ Followers

http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

10/11

7/23/2016

MBA Study Material - Managerial Economics- Introduction ~ CAREER CART

RamuMagham
Addtocircles

274havemein
circles

View
all

Terms & Conditions

Disclaimer
Privacy Policy

2013 CAREER CART. All rights resevered. Designed by

Templateism

http://careercart.blogspot.in/2012/11/mba-study-material-managerial-economics.html

11/11