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Managerial Economics: Meaning, scope and methods of Managerial Economics

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Managerial Economics and its basic aspects are discussed in this Slideshare. Managerial Economics is the application of Economic Theory to managerial practice – here you will be introduced to its other aspects as well as how it helps in the growth and target achievement of an organization.
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Managerial Economics: Meaning, scope and methods of Managerial Economics

  1. 1. The Meaning, Scope and Methods of Managerial Economics Meaning Managerial Economics is the application of Economic Theory to managerial practice. It relates to the use of tools and techniques of economic analysis to solve managerial problems.
  2. 2. The Meaning, Scope and Methods of Managerial Economics Meaning Managerial Economics • is the application of Economic Theory to managerial practice. • is the integration of economic theory with business practice to facilitate decision making and forward planning.
  3. 3. The Meaning, Scope and Methods of Managerial Economics Meaning Managerial Economics • is the application of Economic Theory to managerial practice. • is the integration of economic theory with business practice to facilitate decision making and forward planning. • is the application of economic theory and methodology to business administration practice
  4. 4. The Meaning, Scope and Methods of Managerial Economics Meaning Last three definitions tell us that, from wide subject of Economics, that body of knowledge, which emerges to facilitate the process of decision making in shaping destiny of a firm, is the subject matter of Managerial Economics.
  5. 5. The Meaning, Scope and Methods of Managerial Economics Features of Managerial Economics : • Micro Economics oriented • Normative approach • Only a part of the Science of Economics • Knowledge of Macro Economics Essential
  6. 6. The Meaning, Scope and Methods of Managerial Economics Features of Managerial Economics : • Micro Economics oriented There are two approaches to study of Economics. Macro and Micro. Macro economic approach deals with the economy as a whole. National Income, Trade Cycles etc. are its themes.
  7. 7. The Meaning, Scope and Methods of Managerial EconomicsFeatures of Managerial Economics :• Micro Economics orientedMicro economic approach deals with individualeconomic behavior. This is close to analysis ofthe decision making aspects of the unit ofmanagement at the firm level.And it provides Micro Economics orientation toManagerial Economics.
  8. 8. The Meaning, Scope and Methods of Managerial EconomicsFeatures of Managerial Economics :• Micro Economics oriented• Normative approachFor study of science, there is positive approach andnormative approach.In positive approach, we are concerned with thesituation ‘as it is.’In normative approach, we are concerned with thesituation ‘as it ought to be.’Aim of managerial Economics is not only to describe, butalso to prescribe. Hence it has normative approach.
  9. 9. The Meaning, Scope and Methods of Managerial EconomicsFeatures of Managerial Economics :• Micro Economics oriented• Normative approach• Only a part of the Science of EconomicsStudy of Economics covers issues like welfare, money,agriculture, international trade, public finance, etc. Managerial Economics deals with decision taking ofmanagerial cadre at the level of the firm .Thus it becomes only a part of the subject of Economics.
  10. 10. The Meaning, Scope and Methods of Managerial EconomicsFeatures of Managerial Economics :• Micro Economics oriented• Normative approach• Only a part of the Science of Economics• Knowledge of Macro Economics EssentialSince firms do not work in isolation, managers have toconsider competition, government intervention, tariffs,trade & monetary policies, liberalization etc.This makes knowledge of macro Economics essentialfor a student of Managerial Economics.
  11. 11. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter –The subject matter of Managerial Economics revolvesaround the Theory of the firm.This theory has two aspects Financial aspect and Physical aspect
  12. 12. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter –The subject matter of Managerial Economics revolvesaround the Theory of the firm.This theory has two aspects Financial aspectitself comprises of the cost side and the revenue side.Between the revenue and the cost, the firm aspires togain profits … maximum possible profits.
  13. 13. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter – Financial aspectBetween the revenue and the cost, the firm aspires to gain profits … maximum possible profits. Towards this end, the firm1. has to fix price.2. predict or forecast demand.3. consider market morphology.
  14. 14. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter – Financial aspectBetween the revenue and the cost, the firm aspires to gain profits … maximum possible profits. Towards this end, the firm1. has to fix price.2. predict or forecast demand.3. consider market morphology.4. work out price output relations condition for profit maximization condition for loss minimization
  15. 15. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter – Financial aspectBetween the revenue and the cost, the firm aspires to gain profits … maximum possible profits. Towards this end, the firm1. has to fix price.2. predict or forecast demand.3. consider market morphology.4. work out price output relations condition for profit maximization condition for loss minimization5. Work out means for survival or decide to shut-down.
  16. 16. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter – Financial aspect Physical aspect requires managers to consider• Input-output relationships or production process• Optimization of the available resources to produce maximum, desirable output• Project planning• Capital budgeting• Use of mathematical tools like diagrams, derivatives, correlation, regression, probability theory etc
  17. 17. The Meaning, Scope and Methods of Managerial EconomicsScope and Subject Matter –Financial aspect Physical aspect‘ Management without Economics has no roots&Economics without management bears no fruits!
  18. 18. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method.The Statistical MethodThe Method of Intellectual ExperimentThe Method of SimulationThe Descriptive Method
  19. 19. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method. this method is of limited use because it is difficult to carry out experiments to test the validity of managerial behavior, as it deals with human aspects & behavior which is complex.
  20. 20. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method. this method is of limited use because it is difficult to carry out experiments to test the validity of managerial behavior, as it deals with human aspects & behavior which is complex.We can think of a blend of inductive or deductive methods.
  21. 21. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method.The Statistical Method Is a device by which quantitative data are collected and scientifically analyzed for a clear picture. The data is classified, tabulated, compared, correlated and finally interpreted. Model building is another tool used.
  22. 22. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method.The Statistical Method Is a device by which quantitative data are collected and scientifically analyzed for a clear picture. The data is classified, tabulated, compared, correlated and finally interpreted. Model building is another tool used. Offers best results in demand forecasting and sales promotion.
  23. 23. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method.The Statistical MethodThe Method of Intellectual ExperimentThe Method of Simulation has acquired prominence on arrival of computers. now we can program complex relationships
  24. 24. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics we utilizeThe Scientific Method or Experimental Method.The Statistical MethodThe Method of Intellectual ExperimentThe Method of SimulationThe Descriptive MethodIn the study of Managerial Economics we employ anyone or more of these available methods
  25. 25. The Meaning, Scope and Methods of Managerial EconomicsMethodsIn the study of Managerial Economics, oftenFacts and figures of the firm provide complete information after co-ordination and compilation.Firms form voluntary associations to obtain and analyze data.They act on published data , or arrange surveys and investigations.“Case Studies” offers one more invigorating method in learning Managerial Economics.

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