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Managerial economics 15

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Managerial decision sciences

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Managerial economics 15

  1. 1. 1
  2. 2. 2 Economics is the study of nature and uses of national wealth Father of Economics Adam Smith (1723-1790)
  3. 3. I. Ceteris Paribus- Other things remaining equal  It is a Latin word means ‘with other things (being) the same’ 3
  4. 4. II. Rationality  Implies that consumers and producers measure and compare costs and benefits before taking decisions  Consumers: Maximising utility and minimising sacrifice  Producers : Maximising profits and minimising costs 4
  5. 5. A. Micro(individual consumers and firms) Macro (Aggregates- Industry, not firm) B. Positive – The distribution of income in India is unequal. Normative – The distribution of income in India should be equal. 5
  6. 6. C. Time period  Short run -A time period not long enough for consumers and producers to adjust to a new situation-  Long run- Planning horizon- A time period long enough for consumers and producers to adjust to a new situation- All inputs can be varied- Whether to change product lines, build new plant etc. 6
  7. 7. “Application of economic theory and tools of analysis of decision science and forward planning to examine how an organization can achieve its objectives most efficiently” 7
  8. 8. 8 Utilization of minimum resources Earn maximum profit Resources Demand for Resources
  9. 9. 9 Economics – Theory & Methodology Business Management – Decision Problems Managerial Economics – Application of economics to solve business problems
  10. 10.  Microeconomics  Pragmatic  Macroeconomics  Aims at helping the management  A scientific art  Prescriptive rather than descriptive 10
  11. 11.  Theory of demand  Demand Analysis  Demand Theory  Theory of production  Variable factor of production  Fixed factor of production  Theory of price  Theory of profit 11  Theory of capital and investment  Environmental issues  Business cycles  Industrial policy of the country  Trade and fiscal policy of the country  Taxation policy of the country  Price and labour policy
  12. 12. Define the problem Determine the objective Identify possible solutions Select the best possible solution Implement the decision 12 5 Stage Model of Decision Making Process
  13. 13. o Use of Statistical Techniques o Time Series: For Demand forecasting o Regression: Two or multiple variables used to study interrelationships, estimation and prediction o Measures of central tendency and variation 13
  14. 14. What is the role of Economics in Business? Costs, prices, output, compensation, strategic behaviour and ethics making. The Big Picture- Whose job is this? Economic theory forms management areas such as accounts, finance, marketing, systems and operations. 14
  15. 15. Role Of Managerial Economist: To decide  What to produce?  Where?  How ?  How much?  Allocation of resources  For whom to produce?  Which price to sell? 15
  16. 16. Plan and control business operations-  Cost minimisation  Profit maximisation ??  Managing competition  Economic intelligence  Market research 16
  17. 17.  The principles of managerial economics are integral to the decision making process within business.  Managerial economics provides information on consumers, prices, costs, quantities, competition and business strategy.  A major contribution of managerial economics is the estimation of risk. 17
  18. 18. Thank you

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