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ECONOMICS is the study of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scarce resources. Management is the discipline of organizing and allocating a firms scarce resources to achieve its desired objectives.
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Managerial economics is the use of economic analysis to make business decisions involving the best use (allocation) of an organizations scarce resources.
The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.
These two definitions clearly point to the relationship between economics and managerial decision making. We can combine the two business decisions involving the best use of an organizations scarce resources
Managerial economics provides a systematic, logical way of analyzing business decisionsboth present and future decisions.
MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS
The objective of this chapter is to show how managers can use economic analysis in making decisions that will achieve the firms goals usually the maximization of profit. Managers cannot expect to succeed without understanding how market forces shape the firms ability to earn profit.
In making decisions, managers must essentially deal with the following questions listed .
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a. b. c. d. e. f. g.
What are the economic conditions in a particular market in which we are or could be competing ? In particular : Market structure ? Supply and demand conditions ? Technology ? Government regulations ? International dimensions ? Future conditions ? Macroeconomic factors ?
levels should we set in order to maximize our economic profit or minimize our losses in the short run ?
MANAGERIAL ECONOMICS
MARKETING
FINANCE
STRATEGY
One of the best ways to link the economic problem of making choices under conditions of scarcity with tasks of a manager is to consider the view put forth by prof. Robert Anthony that a manager is essentially a person who is responsible for the allocation of a firms scarce resources.
Management involves the ability to organize and administer various tasks in pursuit of certain objectives. An important part of a managers job is to moniter and guide people in an organization. In the words of Peter Drucker , who has been called the founding father of the science of management,
It is management that determines what is needed and what has to be achieved (in an organization).. Management is work. Indeed, it is the specific work of a modern society, the work that distinguishes our society from all earlier ones As work, management has its own skills, its own tools, its own techniques.