Unit 1 and 2 of Managerial Economics cover basic concepts including scarcity of resources and their alternate uses at micro and macro levels. The document then discusses the nature and scope of managerial economics, including decision making, resource allocation, and profit maximization. Microeconomics concepts like consumer behavior, production theory, and market structures are introduced. Macroeconomics deals with issues at the economy-wide level. The relevance of managerial economics in business decisions such as planning, cost control, and pricing is also outlined.
Unit 1 and 2 of Managerial Economics cover basic concepts including scarcity of resources and their alternate uses at micro and macro levels. The document then discusses the nature and scope of managerial economics, including decision making, resource allocation, and profit maximization. Microeconomics concepts like consumer behavior, production theory, and market structures are introduced. Macroeconomics deals with issues at the economy-wide level. The relevance of managerial economics in business decisions such as planning, cost control, and pricing is also outlined.
Unit 1 and 2 of Managerial Economics cover basic concepts including scarcity of resources and their alternate uses at micro and macro levels. The document then discusses the nature and scope of managerial economics, including decision making, resource allocation, and profit maximization. Microeconomics concepts like consumer behavior, production theory, and market structures are introduced. Macroeconomics deals with issues at the economy-wide level. The relevance of managerial economics in business decisions such as planning, cost control, and pricing is also outlined.
Basic concept Scarcity of resources Resources have alternate uses Micro level (farmer) Macro level (government) So, we can say that economics is problem of management of resources. Nature and scope The most important function in managerial economics is decision-making. It involves the complete course of selecting the most suitable action from two or more alternatives. The primary function is to make the most profitable use of resources which are limited such as labor, capital, land etc. A manager is very careful while taking decisions as the future is uncertain; he ensures that the best possible plans are made in the most effective manner to achieve the desired objective which is profit maximization. Economic theory and economic analysis are used to solve the problems of managerial economics. Economics basically comprises of two main divisions namely Micro economics and Macro economics Managerial economics covers both macroeconomics as well as microeconomics, as both are equally important for decision making and business analysis. Macroeconomics deals with the study of entire economy. It considers all the factors such as government policies, business cycles, national income, etc. Microeconomics includes the analysis of small individual units of economy such as individual firms, individual industry, or a single individual consumer. Scope of Managerial economics All the economic theories, tools, and concepts are covered under the scope of managerial economics to analyze the business environment. The scope of managerial economics is a continual process, as it is a developing science. Demand analysis and forecasting, profit management, and capital management are also considered under the scope of managerial economics. Demand Analysis and Forecasting: Demand analysis and forecasting involves huge amount of decision-making! Demand estimation is an integral part of decision making, an assessment of future sales helps in strengthening the market position and maximizing profit. In managerial economics, demand analysis and forecasting holds a very important place. Profit Management:Success of a firm depends on its primary measure and that is profit. Firms are operated to earn long term profit which is generally the reward for risk taking. Appropriate planning and measuring profit is the most important and challenging area of managerial economics. Capital Management:Capital management involves planning and controlling of expenses. There are many problems related to capital investments which involve considerable amount of time and labor. Cost of capital and rate of return are important factors of capital management Micro economics It is study of economic issues considering small economic units. e.g. individual consumer/ individual firm(theory of consumer behavior/ theory of demand), individual producer ( theory of supply) etc. Theory of consumer behavior: it analysis how consumer allocates his income to different uses so that he maximizes his satisfaction. Theory of producer behavior : it analyze the producers choice of input of resources, product and quantity of production. Theory of price : it analyze how prices of goods are determined in the commodity market. Basic Concepts of Microeconomics The study of microeconomics involves several key concepts, including (but not limited to): (i) Production theory This is the study of production — or the process of converting inputs into outputs. Producers seek to choose the combination of inputs and method of combining them that will minimize cost in order to maximize their profits. (ii) Utility theory Analogous to production theory, consumers will choose to purchase and consume a combination of goods that will maximize their happiness or “utility”, subject to the constraint of how much income they have available to spend. (iii) Price theory Production theory and utility theory interact to produce the theory of supply and demand, which determine prices in a competitive market. In a perfectly competitive market, it concludes that the price demanded by consumers is the same supplied by producers. That results in economic equilibrium. (iv) Industrial organization and market structure Microeconomists study the many ways that markets can be structured, from perfect competition to monopolies, and the ways that production and prices will develop in these different types of markets. Macro economics It is study of economic issues at the level of economy as a whole. Basic problem ( rational management of resources) is same as micro-economics, but focus shifts from maximisation of individuals gain to the maximization of social welfare. Managerial Economics and its Relevance in Business Decisions 1.Useful in Business Organization In any institution or firm. How should any production be done, and for whom should be produced? The answer to all these questions remains only with the managerial economy because he plays the most important role in these tasks. So we can say that managerial economics plays a very big role and significance in the important decisions of the business. So this is a very good Role and Importance of Managerial Economics in Choosing Right Decisions of any business. 2.Helpful in Chalking Out Business Policies The art is only in business economics to maximize the profit of any institution and minimize cost and whatever policies are made from this. It is very useful for any business or firm so that every firm and business can get the maximum benefit. Then we can say that there is a huge contribution of managerial economics to profit maximization and determining policies. It also helps in doing it. 3.Help in Business Planning Business economics is very useful in planning a complete prospect among the successful operation and production of any business or firm. Which acts as a balance bridge between the production tools and operating systems and where to go. So this is the biggest and important role of business economics in any business or firm. 4.Helpful in Cost Control Managerial economics decides the business is going towards profit or loss. managerial economics decides which way is good for the business. And it is only possible when managerial economics plays a very big and important role in cost control decisions. Thus, Role and Importance of Managerial Economics in Choosing Right Decisions is very powerful. 6.Useful in Coordination of Business Activities Managerial economics is useful in coordinating the various activities of a business. 7.Useful In Demand for Casting Managerial economics provides useful tools for economics managers in demand forecasts and is useful in demanding production planning. The managerial economy deals with future losses easily. So that any business can be protected against future losses. 9.Helpful in Price Determination Managerial Economics provides the necessary guidance in managing the pricing of its business. This proves this in order to raise the required data in pricing and get the maximum benefit. So that is the major role of managerial economics in the business decision critical. Without this, no business can progress. 7.Helpful in Profit Planning and Control Managerial economics helps managers to decide on the planning and control of the benefits. Managerial Economics is synchronized between the planning and control of any institution or firm and hence its importance increases. Thus, it plays a huge role in business decisions. So its Role And Importance Of Managerial Economics In taking Right Decisions. 8.Helpful for Business Prediction It is not known to anyone about what is going on in the business. Therefore, business economics tells us that the business can see what is troubling in the future. So, Then the managerial economics gives its solutions. So that they can be avoided and the benefits can be increased. Central problem of an economy Q1. what to produce? What goods and services to produce? In what quantity goods aqnd services are to be produces? This problem becomes complex when choice is to be made across consumer goods(essential to promote quality of life) and capital goods(essential to increase production capacity). As there is no “either-or”choice in this and both consumer and capital goods are of significance. Q2. How to produce? It refers to the technique of production. (i)Labor intensive technique: Implies greater use of labor Less expensive Reduce un employment (ii)Capital intensive technique: Implies greater use capital Promotes efficiency Pushes up pace of growth Central problem of an economy The choice between labor intensive and capital intensive techniques becomes a problem because producers needs to minimize their costs and at the same time want to maximize their efficiency. Q3. For whom to produce? It refers to the problem of distribution of output( or income) in the economy. (i) Factorial distribution It is the income share of different factors of production. i.e. wages to labor, interest for capital, rent for land. (ii) Interpersonal distribution of income It refers to the income share of individual and households in the society. Basic question revolves around the equality/inequality in the society. Solution to Central problem of an economy Market economy Centrally planned economy Mixed economy Market economy It is a free economy in which producers are free to decide what ,how & for whom to produce. Q1. What to produce? Goods and services which are more in demand and less in supply. Q2. How to produce? Producers will use inputs which keep their cost of production as low as possible to maximize Profits. Q3. For whom to produce? Goods are produced for those who can afford to pay high price. Centrally planned economy Social justice is given priority than profit maximization. Decisions like Q1. What to produce? Q2. How to produce? Q3. For whom to produce? Are taken by the central authority appointed by the government. Those goods/services are produced which are most useful for the society by techniques of production which is most useful socially.