MANAGERIAL ECONOMICS Chapter 1 Introduction Nature Scope Introduction

MANAGERIAL ECONOMICS Chapter 1 Introduction: Nature & Scope

Introduction • Economy § The word economy comes from a Greek word - “for one manages a household”. § The economy encompasses everything related to the production and consumption of goods and services in an area or region. • Society and Scarce Resources § The management of society’s resources is important because resource are scarce. § Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. § Scarcity implies choice and choice implies cost.

Economics : Science of scarcity • Scarce resources for society : Land Labour (L) Capital (K) Skill • Scarce resources of a business unit : Men Machine Material Money Mineral • Unlimited desires : Profitability (∏)

Unlimited choice Limited resources scarcity What to produce? How to produce? For whom to produce?

What is Economics § Economics is the study of how society manages its scarce resources. § Economics as a science is concerned with the problem of allocation of scarce resources among competing ends (Desires).

Circular Flow of Economic Activity

Micro & Macro Economics • Microeconomics focuses on the behaviour of the individual actors on the economic stage i. e. firms and individuals and their interaction to markets. Managerial economics should be thought of as applied microeconomics. • Macroeconomics is the study of economic system as a whole. It includes techniques for analyzing changes in total output, total employment, consumer price index, unemployment rate, exports and imports. Macroeconomics addresses questions about the effect of changes in investment, government spending, tax policy on exports, output, employment, prices

Introduction to Managerial Economics • What is Managerial Economics § Managerial economics is the branch of economics which deals with managing the scarce resources of a firm. § In managerial economics, the emphasis is upon the firm, the environment in which the firm finds itself, and the decisions which individual firms have to take. § Managerial economics uses the tools and techniques of economic theory for effective and efficient utilization of economic resources, in order to optimize the profitability of a business organization.

Nature of Managerial Economics • . “Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management. ” -Spencer & Seigelman

Managerial Economics Model

Scope of Managerial Economics • Demand Analysis and Demand Forecasting • Production Analysis • Cost Analysis • Pricing and Output • Profit Management

Characteristics of Managerial Economics • Managerial Economics is basically micro-economic in characteristics. • Managerial Economics takes the help of macroeconomics to understand adjust to the environment in which firm operates. • Managerial Economics follows normative school of thought rather than positive school. • Managerial Economics is prescriptive rather than descriptive, in approach. • It is both conceptual (qualitative) as well as metrical (quantitative). • The contents of Managerial Economics are based mainly on the ‘theory of the firm’.

Relationship of ME with other disciplines • Mathematics : Geometry , algebra, calculus , determinants , vectors. • Operations Research: Linear Programming , Queuing • Statistics : Theory of probability • Traditional Economics :