Managerial Economics Nature and Scope By – Suksham R. Aneja [email protected]

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Also called Business Economics and Applied Economics. Integration of economic theory with business practice. Economics –  

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Concerned with allocation of scarce resources among competitive ends. Provides tools and concepts to explain behaviour of economic variables

Business Economics –  

Applies these tools and concepts to the management of business. Application of economics in decision-making.

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Application of economic theory to the problems of management. Problems relate to the decision making about the allocation of scarce resources According to Spencer and Siegelman, “Business Economics is the integration of economic theory with Managerial practices for the purpose of facilitating decision making and forward planning by management.” Lies on the border line between economics and business management and serves as a bridge.

Basic theme of Managerial Economics

Nature of Managerial Economics Micro-Economics – as unit of study is a firm Help of Macro-Economics – to understand and adjust to the environment Pragmatic/Practical – avoids difficult abstract issues of economic theory but considers the particular environment of decision-making Normative Economics – concerned with what decisions ought to be made and hence involves value judgments.

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First it tells what aims and objectives a firm should pursue Secondly, how best to achieve these aims in particular situations.

Applied branch of knowledge. Conceptual and Metrical

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Theory of Firm –

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Conceptual framework to understand and analyse the decision problems Metrical as takes the help of quantitative techniques to measure the impact of different factors and policies. Contents are mainly based on „Theory of Firm‟ Only for analysis of profit help is taken from the „Theory of Distribution‟

Wise Choices – as it is goal-oriented and aims at maximum achievement of objectives. Multi-disciplinary – related with different disciplines like Statistics, Management, Operations Research, Mathematics and Psychology.

Scope of Managerial Economics Theory of Forecasting

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Demand

Analysis

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Demand theory– Consumer‟s Behaviour – helpful in the choice of commodities for production; Demand forecasting – essential for managerial planning.

Theory of Production / Theory of Firm

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Relationship between Inputs and Outputs Determining the size of the firm – Size of total output; Amount of capital and labour to be employed.

Analysis of Market-Structure and Pricing Theory

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Determination of price under different market conditions; Price discrimination & ment decisions

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Cost Analysis –    

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Classification of cost; Cost-output relationships; Economies & diseconomies of scale; Production function & Cost control.

Profit Analysis and Profit Management – guides the firm in 

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Measurement and management of profit; Making allowances for the risk ; Calculating the pure return on capital; Future profit planning

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Theory of Capital and Investment Decisions – helps in    

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Investment decision making; Choice of projects; Assessing the efficiency of capital; Capital budgeting.

Inventory Management – minimizing inventory cost. Thus Business Economics tries to find out whatever is likely to be the best for the firm under a given set of conditions.