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Dr.L.KRISHNA VENI

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DEFINITION OF MANAGERIAL

ECONOMICS

It refers to the application of economic

theory and the tools of analysis ofdecision science to examine how anorganization can achieve its aims or

objectives most efficiently.

The meaning of this definition can be

examined with the help of the figure

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Nature of Managerial Economics

Economic Theory:Micro Economics,Macro Economics

Management DecisionProblems

Decision SciencesMathematicalEconomics,

Econometrics

Managerial Economics:Application of Economic

Theory &DecisionScience Tools To SolveManagerial Decision

Problems

Optimal Solution to Managerial DecisionProblems

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Management Decision Problems Management decision problems arise in any

organization-be it a firm/non-profit-organization /government agency

To achieve the goals/objectives subject to certainconstraints, ME is essential

However the goals &constraints may differ from case

to case, but the decision-making process is the same Ultimate aim is always to attain maximum profit with

minimum cost of production

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Examples -Aimed To Achieve Maximum

Profits1.A HOSPITAL

It can treat as many patients as possible at an adequatemedical standards with its limited infrastructure, No ofbeds, doctors, surgeons, nurses, paramedical staff,operation theaters, in-patient ward, out -patient ward

Administrative Staff

2.A UNIVERSITY

It can produce as many students as possible at an adequateeducational standards with its limited infrastructure-classrooms, no of faculties, library, lab, Furniture ,teacher-student ratio, Administrative Staff

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How Managerial Economics

Useful?It applies economic theory and methods to business and

administrative decision making

ME prescribes rules for improving managerial decisions& to solve the management problems

It also helps the managers to recognize how economicforces affect organizations and describes the

economic consequences of managerial behavior.It links economic concepts and quantitative methods to

develop vital tools for managerial decision making

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MANAGERIAL ECONOMICS

To provide optimal solutions tomanagement

Decision Problems-we have to use

Economic Concepts

Quantitative Methods

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MANAGEMENT DECISION

PROBLEMS

Product Selection, Output &Pricing

Internet Strategy

Organization Design

Product Development &Promotion Strategy

Worker Hiring &raining

Investment and Financing

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ECONOMIC CONCEPTS

Marginal Analysis

Theory of Consumer Demand

Theory of the Firm

Industrial Organization & Firm

Behavior

Public Choice Theory

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QUANTITATIVE METHODS

Numerical Analysis

Statistical Estimation

Forecasting Procedures

Game Theory Concepts

Optimization TechniquesInformation Systems

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Relationship to Economic Theory Economic theory refers to Microeconomics

&Macroeconomics

Mirco economics is the study of the economicbehavior of individual decision making units-individual consumers, resource owners andbusiness firms in a free enterprise systems

Macroeconomics deals with aggregates such aslevel ofoutput,income,employment,consumption,investment and prices for the economy

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Economic theories seek to predict economicbehavior

These theories begin with a model Determinants will be identified for every event

firms behavior in fulfilling its objectives to achievemaximum profits with minimum costs

The methodology of economics is to accept amodel if it predicts accurately based on certainassumptions

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Relationship To The Decision

Sciences

Application of mathematics

Mathematical economics

Econometrics

Developing economic mnodelsEx-demand function

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Relationship to functional areas of business

administration of studies

It includes-

Accounting

Finance

Marketing

HRM

Production

Thus ME is regarded as an overview course thatintegrate economic theory ,decision sciences and thefunctional areas of business administration studies

It examines how it interacts with each other

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All students take the knowledge and tools ofManagerial economics to understand the functionalareas in a logical and systematic way

ME helps to understand how a firm can achieve itsobjective most efficiently within the businessenvironment

It exclusively focus on integrating and synthesisingrole in analysing the decision making process

Y0u can go for elective cources,but knowledge in Meiamust

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The Basic Problem Of Decision MakingIt can be divided in to 5 steps-

Define the problem Determine the objective

Identify alternatives

The possible solutions

Select the best possible solution among thepossible

Implement the decisions