MANAGERIAL

ECONOMICS

BHUWAN BHATTA

WHAT IS ECONOMICS?
Economics is the study of allocation of
scarce resources among alternate uses.
Economics is the study of how individuals
and groups make decisions with limited
resources as to best satisfy their wants,
needs and desires.
Economics is on one side the study of
wealth and on the other and more important
side, a part of the study of man.

Economics

Microeconomics

Macroeconomics
ETC

Managerial
Economics

Industrial
Economics

Financial
Economics

Macro
Economics
Studies the economic
system in aggregate
Looks at the total
output of a nation and
the way the nation
allocates its resources of
land, labour, capital, etc.
to promote trade and
growth

Micro Economics
Studies the behavior of an
individual decision making
unit like an
individual/household/ firm

Managerial Economics
New discipline
Business Economics or Economics for
Managers
Applied Economics in the sphere of business
management
Application of economic theory and
methodology to decision-making problems
faced by the business firms

Managerial Economics is the integration of economic

theory with business practice for the purpose of
facilitating decision-making and forward planning by
management.
- Spencer & Siegelman
Managerial Economics is economics applied in decisionmaking. It is a special branch of economics bridging the
gap between the economic theory and managerial
practice. Its stress is on the use of the tools of economic
analysis in clarifying problems in organizing and
evaluating information and in comparing alternative
courses of action.
-W. W. Haynes
The purpose of Managerial Economics is to show how

Economic
Theories,
Concepts,
Methodology and
Tools

Business
management
Decision Problems

Managerial Economics
Application of Economics
in analyzing and solving
Business problems

Optimum solutions to business

problems

The Basic process of Decision

Making

1.Define the problem

2. Determine the objective

3.Identify possible solution
4. Select the best possible solution
5. Implement the Decision

THE MANAGER OF A FIRM FACES

THE FOLLOWING BASIC ISSUES
Choice of product
Choice of inputs
Distribution of the firms revenues
Rationing
Maintenance and expansion

GOALS OF A FIRM
Market share
Customer satisfaction
ROI
Technological advancement
Long run survival
Entry prevention & risk avoidance
Social/Environmental concerns

BASIC ECONOMIC CONCEPTS

1. CHOICES AND DECISIONS
RESOURCES

MONEY
MACHINE
MATERIALS
LABOUR
TIME
SKILL
TECHNOLOGY

CHOICES ALTERNATE USES

WHETHER
WHETHER

TO STUDY FULL TIME MBA OR MCA OR LAW

TO KEEP MONEY IN SB OR TD OR INVEST IN BUSINESS OR SHARES

OPPORTUNISTIC COST

BASIC ECONOMIC CONCEPTS

2. HUMAN ACTION PURPOSEFUL BEHAVIOUR

3. SCARCITY
If anything is scarce, it is a subject of economics.
Otherwise, it is not a subject matter of
economics.
4. TRADE OFF
Economics is about trade of
If you get one thing, you cannot get another thing.
You have to give up one for the other.

BASIC ECONOMIC CONCEPTS

5. INCREMENTAL CONCEPT

While adding a new business/buying new input/adopting new

process

6. DISCOUNTING CONCEPT
If a decision afects costs and revenues in the long run, they
should be discounted. A rupee in future is less in value

7. TIME PERSPECTIVE
Short term and long term impact due to decisions say pricing
decision

8. MARGINAL CONCEPT

Marginal utility of the product. Marginal utility is derived from the

BASIC ECONOMIC CONCEPTS

9. EFFCIENCY AND PRODUCTIVITY
How well resources are used in order to get maximum output.
Productivity means with one of input, how much output you get.

Productivity per worker

Productivity per machine

10. MEANS = RESOURCES = INPUT

TIME, MONEY, LAND, LABOUR, CAPITAL, NATURAL RESOURCES

11. UTILITY

Subjective benefit a particular person gets by using a particular goods

12. GOOD (ECONOMIC GOOD)

BRINGS UTILITY
DOES NOT MEAN THAT IT BRINGS THE SAME BENEFIT TO EVERY BODY

BASIC ECONOMIC CONCEPTS

13. MODEL

Theoretical abstract representation over relationship between two

or more economic variables.

Out put depends on in put (capital, labour, etc)

Every model has four fundamentals

Theory
Variables
Assumptions
Causation

Example: Inflation

Causation: Increasing money supply (Value of money falls, prices

increase)

BASIC ECONOMIC CONCEPTS

13. RISK AND UNCERTANITY
14. THE EQUI-MARIGINAL UTILITY

THANKS.