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MANAGERIAL ECONOMICS IS CONCERNED WITH THE APPLICATION

OF ECONOMIC CONCEPTS AND ECONOMICS TO THE PROBLEM S OF


FORMULATING RATIONAL DECISION MAKING
MANAGERIAL ECONOMICS

 Use of basic economic theories in the


business decision making
MANAGERIAL ECONOMICS

 MANAGERIAL ECONOMICS IS THE


INTEGRATION OF ECONOMIC THEORY
WITH BUSINESS PRACTICE FOR THE
PURPOSE OF FACILITATING DECISIONS
AND FORWARD PLANING
ECONOMICS

 IS A SOCIAL SCIENCE
 WHICH STUDIES HUMAN BEHAVIOUR
 IN RELATION TO OPTIMIZING ALLOCATION
OF AVAILABLE RESOURCES
 TO ACHIEVE THE GIVEN ENDS
ECONOMICS

 IS A STUDY OF THE CHOICE MAKING


BEHAVIOUR OF THE PEOPLE
ECONOMICS CONTRIBUTE

 A GREAT DEAL TOWARDS THE


PERFORMANCE OF MANAGERIAL DUTIES
JUST AS BIOLOGY CONTRIBUTE TO THE
MEDICAL PROFESSION
MANAGERIAL ECONOMICS

 IS THE STUDY OF ECONOMIC


THEORIES,LOGIC AND TOOLS OF
ECONOMICS ANALYSIS THAT ARE USED IN
THE PROCESS OF BUSINESS DECISION
MAKING
SCOPE OF MANAGERIAL
ECONOMICS
 MANAGERAIL ECONOMICS COMPRISES OF
MICRO AND MACRO ECONOMICS
MICRO ECONOMICS

 MICRO MEANS SMALL


 MICRO ECONOMIC ISE STUDY OF
PARTICULAR FIRMS,PARTICULAR
HOUSEHOLDS,INDIVIDUAL
PRICES,WAGES,INCOMES,INDIVIDUAL
INDUSTRIES,PARTICULAR COMMODITIES
 MICRO ECONOMICS IS THE MICRO SCOPIC
STUDY OF THE ECONOMY
MANAGERIAL ECONOMICS

 IS THE APPLIED ECONOMICS


MICRO ECONOMICS THEORY

 THEORY OF DEMAND
 THEORY OF PRODUCTION AND COST
 FACTOR PRICING (THEORY OF
DISTRIBUTION
 THEORY OF ECONOMIC WELFARE
 THEORY OF INTERNATIONAL TRADE
MACRO ECONOMICS

 MACRO MEANS LARGE


 MACRO ECONOMICS IS CONCERNED WITH
THE ANALYSIS OF THE ECONOMY AS A
WHOLE
 MACRO ECONOMICS STUDIES THE ENTIRE
ECONOMIC SYSTEM
 MACRO ECONOMICS IS NOT CONCERNED
WITH A PARTICULAR DECISION MAKING
UNIT BUT WITH ALL SUCH UNITS
COMBINED TOGETHER
THEORIES OF PROFITS

 HAWLEYS RISK THEORY OF PROFITS


 KNIGHTS THEORY OF PROFITS
 SCHUMPETER INNOVATION THEORY OF
PROFITS
 CLARKE DYNAMIC THEORY
OBJECTIVES OF THE BUSINESS
FIRMS
 CONVENTIONAL THEORY OF FIRMS
ASSUME THAT PROFIT MAXIMIZATION AS
THE SAME OBJECTIVE OF THE FIRMS
 RECENT RESEARCHERS ON THIS ISSUE
REVEALS THAT THE OBJECTIVE OF THE
FIRMS PURSUE ARE MORE THAN ONE
SOME OTHER OBJECTIVES OF THE
FIRMS
 MAXIMIZATION OF SALES REVENUE
 MAXIMIZATION OF FIRM GROWTH RATE
 MAKING SATISFACTORY RATE OF PROFIT
 LONG RUN SURVIVAL OF THE FIRMS
 ENTRY PREVENTION
DEFINATION ECONOMICS

 ECONOMICS IS THAT BRANCH OF


 KNOWLEDGE THAT STUDIES
 PRODUCTION
 CONSUMPTION
 INVESTMENTS
 EXCHANGE
 DISTRIBUTION
PRODUCTION

 PRODUCTION IS THAT ACTIVITY WHICH IS


CONCERNED WITH INCREASING THE
UTILITY OR VALUE OF GOODS AND
SERVICES
 MANUFACTURNG SHIRT WITH HELP OF
CLOTH IS THE ACT OF PRODUCTION
CONSUMTION

 CONSUMPTION IS THAT ECONOMIC


ACTIVITY WHICH IS CONCERNED WITH THE
USE OF GOODS AND SERVICES FOR THE
DIRECT SATIFACTION OF INDIVIDUAL AND
COLLECTIVE WANTS
 EATING BREAD IS THE CONSUMPTION
ACTIVITY
 SERVICES OF DOCTORS IS THE
CONSUMPTION ACTIVITY
ECONOMICS

 ECONOMICS IS THE SCIENCE YHAT STUDIES


HUMAN BEHAVIOUR AS A RELATIONSHIP
BETWEEN ENDS AND SCARCE MEANS
WHICH HAVE ALTERNATIVE USES
 ECONOMICS IS A SCIENCE OF CHOICE
 IT DEALS WIH HOW THE RESOURCES OF
SOCIETY SHOULD BE ALLOCATED TO THE
SATISFACTION OF DIFFERENT WANTS
 ENDS MEANS WANTS
ECONOMICS

 HAS ITS ORIGIN FROM TWO GREEK WORDS


 OIKOS(HOUSEHOLD)
 NOMOS(TO MANAGE)
 ECONOMICS WAS USED TO MEAN HOME
MANAGEMENT WITH LIMITED FUNDS
AVAILABLE IN THE MOST POSSIBLE
ECONOMICAL MANNER
DIFFERENCE BETWEEN ECONOMICS
AND MANAGERIAL ECONOMICS
 ECONOMICS TELLS US ABOUT BODY OF
PRINCIPLE WHILE THE MANAGERIAL
ECONOMICS TELLS DEALS WITH THE
APPLICATION OF ECONOMIC PRINCIPLES
TO THE PROBLEM OF THE FIRM
DIFFERENCE BETWEEN ECONOMICS
AND MANAGERIAL ECONOMICS
 ECONOMICS HAS BOTH CHARACTERSTICS
OF MICRO AND MACRO
 MANAGERIAL ECONOMICS HAS MAJOR
CHARACTERSTICS OF MICRO
DIFFERNCE BETWEEN ECONOMICS
AND MANAGERIAL ECONOMICS
 MICRO ECONOMICS AS A PART OF
ECONOMICS DEALS WITH INDIVIDUALS
AND FIRMS
 WHILE MANAGERIAL ECONOMICS DEALS
ONLY WITH FIRMS AND NOT WITH
INDIVIDUALS
DIFFERENCE BETWEEN ECONOMICS
AND MANAGERIAL ECONOMICS
MICRO ECONOMICS BEING PART OF
ECONOMICS DEALS WITH DISRIBUTION
THEORY OF
RENT,INTEREST,PROFIT.WAGES
WHILE MANAGERIAL ECONOMICS DEALS
ONLY IN PROFITS.
CHARACTERTICS OF MANAGERIAL
ECONOMICS
 MANAGERIAL ECONOMICS IS A MICRO
ECONOMICS
 THE STUDY UNIT OF MANAGERIAL
ECONOMICS IS THE FIRM IT DOES NOT
STUDY THE ENTIRE ECONOMY
 MANGERIAL ECONOMICS DEALS WITH
THEORY OF FIRM IN OTHER WORDS IT IS
ECONOMIES OF FIRM
ROLE OF MANAGERIAL
ECONOMIST
 MANAGERIAL ECONOMIST CAN PLAY A
VERY IMPORTANT ROLE BY ASSISTING
MANAGEMENT IN USING THE SPECIALIZED
TECHNIQUES , SKILLS WHICH ARE
REQUIRED TO SOLVE THE DFFICULT
PROBLEM OF SUCCESSFUL DECISION
MAKING AND FORWARD PLANNING
ROLE OF MANAGERIAL
ECONOMIST
WHILE MAKING A SPECIFIC DECISION
MANAGERIAL ECONOMIST HAS TO STUDY
BOTH INTERNAL AND EXTERNAL FACTORS
ROLE OF MANAGERIAL ECONOMIST

 EXTERNAL FACTORS : ARE THOSE


FACTORS IN WHICH MANAGEMENT DOES
NOT HAVE ANY CONTROL LIKE GOVT
POLICIES, FOREIGN TRADE POLICIES
,EXTERNAL COMPETITION ETC
INTERNAL FACTORS

 ARE THOSE FACTORS WHICH ARE


CONTROLLABLE BY THE MANAGEMENT
EXAMPLES FIXING THE SALES AND
PRODUCTION OF THE BUSINESS S,
DETERMINING THE TARGET PROFITS OF
THE BUSINESS,PRODUCTION
SCHEDULE ,WAGES POLICIES ETC
DEFINATIONS ECONOMICS

 ECONOMICS IS RELATED TO ONE ASPECT


OF HUMAN BEHAVIOR OF MAXIMIZING
SATIFACTION FROM SCARCE RESOURCES
MICRO ECONOMICS

 IS THE STUDY OF ECONOMIIC ACTIONS OF


INDIVIDUALS AND SMALL GROUP OF
INDIVIDUALS,THIS INCLUDES THE STUDY
OF PARTICULAR F FIRMS,PARTICULAR
HOUSEHOLDS,INDIVIDUAL PRICES
,WAGES,INCOME,INDIVIDUAL
INDUSTRIES,INDIVIDUAL COMMODITIES
EXAMPLES OF MICRO ECONOMICS

 THE DETERMINATION OF EQUILIBRIUM


OUTPUT OF THE FIRM
 THE WAGES OF PARTICULAR TYPE OF
LABOUR
 PRICE OF PARTICULAR COMMODITY LIKE
RICE,TEA, OR CAR
MACRO ECONOMICS

 IS THE STUDY OF AGGREGATES OR


AVERAGES COVERING THE ENTIRE
ECONOMY SUCH AS TOTAL
EMPLOYMENT,UNEMPLOTMENT,NATION
AL INCOME,NATIONAL OUTPUT,TOTAL
INVESTMENT,TOTAL
CONSUMPTION,TOTAL
SAVINGS,AGGREGATE
SUPPLY,AGGREGATE DEMAND AND
GENERAL PRICE LEVEL,INTEREST RATES
MACRO ECONOMICS

 IT IS THE AGGREGATIVE ECONOMICS


 IT DEALS WITH ECONOMIC AFFAIRS IN THE
LARGE
MACRO ECONOMICS

 IS ALSO KNOWN AS THE THEORY OF


INCOME AND EMPLOYMENT
 IT IS CONCERNED WITH THE PROBLEM OF
UNEMPLOYMENT ,ECONOMIC
FLUCTUATIONS ,INFLATION,
DEFLATION,STAGNATION,INTERNATIONA
L TRADE AND ECONOMIC GROWTH
CONSUMER DEMAND

 CONSUMER DEMAND IS THE BASIS OF ALL


THE PRODUCTIVE ACTIVITY
 DEMAND IS THE MOTHER OF PRODUCTION
 INCREASING DEMAND FOR THE PRODUCT
OFFER HIGH BUSINESS PROSPECTS
DEMAND DEFINATION

 DESIRE FOR A COMMODITY BACKED BY


THE ABILITY AND WILLINGNESS TO PAY
FOR IT
BASIS OF CONSUMER DEMAND

 CONSUMER DEMAND A COMMODITY


BECAUSE THEY DERIVE UTILITY FROM THE
CONSUMPTION OF THE COMMODITY
UTILIY

 IS THE WANT SATISFYING PROPERTY OF


THE COMMODITY
MARGINAL UTILITY

 IT IS DEFINED AS THE UTILITY DERIVED


FROM THE ADDITIONAL UNIT CONSUMED
 IN OTHER WORDS IT IS DEFINED AS THE
ADDITION TO THE TOTAL UTILITY FROM
THE CONSUMPTION OF ONE ADDITIONAL
UNIT
LAW OF DIMINISHING MARGINAL
UTILITY
 THE LAW OF DIMINISHING MARGINAL
UTILITY IS ONE OF THE FUNDAMENTAL
LAWS OF ECONOMICS

IN SIMPLE WORDS WHEN A PERSON


CONSUMES MORE UNITOF A COMMODITY
UTILITY DERIVED FROM SUCCESSIVE
UNITS GOES ON DIMINISHING
LAW OF DIMINISHING MARGINAL
UTILITY
 THIS LAW IS APPLICABLE OF ALL KINDS OF
CONSUMER GOODS
 DURABLE AND NONDURABLE
LAW OF DEMAND

 WHENEVER THERE IS RISE IN PRICES


DEMAND FALLS
 WHENEVER THERE IS FALL IN PRICES
DEMAND INCREASE
SHAPE OF DEMAND CURVE

 DEMAND CURVE IS DOWN WARD SLOPING


 SLOPING DOWN WARD TOWARD RIGHTS
FACTORS AFFECTING DEMAND

 PRICE OF THE COMMODITY


 PRICE OF COMPLEMENTORY GOODS
 PRICE OF SUBTITUTE GOODS
 INCOME OF THE CONSUMER
 TASTE AND PREFERENCE
 OTHERS FACTORS
ROLE OF MANAGERIAL ECONOMICS
IN DECISION MAKING UNDER RISK
AND
 UNCERTAINITY
ROLE OF MANAGERIAL ECO

 ECONOMICS PROVIDES TOOLS AND


TECHNIQUES THAT MANAGERS NEED TO
ACHIEVE THE GOALS OF THE
ORGANIZATION THEY MANAGE
 WORKING KNOWLEDGE OF ECONOMICS IS
ESSENTIAL FOR MANAGERS
 MANAGERS ARE PRACTICING ECONOMIST
ROLE OF MANAGERIAL ECO

 IN PERFORMING THE FUNCTIONS


MANAGER HAS TO TAKE MANY DECISIONS
UNDER THE CONDITION OF RISK AND
UNCERTAINITY
ROLE OF MANAGERIAL ECO

 RISK AND UNCERTAINITY ARISE MAINLY


DUE TO UNCERTAIN BEHAVIOUR OF THE
MARKET FORCES ,CHANGING
ENVIRONMENT,EMERGENCE OF
COMPETITORS,GOVT POLICIES ,SOCIAL
AND POLITICAL CHANGES,EXTERNAL
INFLUENCE ON THE DOMESTIC MARKETS
ROLE OF MANAGERIAL ECO

 COMPLEXITY OF THE MODERN BUSINESS


ADD TO THE COMPLEXITY OFTO THE
BUSINESS DECISION MAKING
ROLE OF MANAGERIAL ECO

 DEGREE OF UNCERTAINTY AND RISK CAN


BE GREATLY REDUCED IF MARKETS
COONDITIONS ARE PREDICTED WITH
SOME RELIABILITY
 ECONOMICS OFFER TOOLS,
TECHNIQUES,VARIOUS LAWS TO PREDICT
THE FUTURE COURSE OF MARKETS
CONDITIONS AND BUSINESS PROSPECTS
ROLE OF MANAGERIAL ECO

 APPLICATION OF ECONONICS THEORIES


CONTRIBUTE A GREAT DEAL IN RATIONAL
DECISION MAKING
ROLE OF MANAGERIAL ECO
 ECONOMICS THEORIES STATE THE FUNCTIONAL
RELATIONSHIP BETWEEN TWO OR MORE ECONOMIC
VARIABLES
 ECONOMIC THEORIES GIVES A CLEAR UNDERSTANDING
OF VARIOUS ECONOMIC CONCEPT LIKE
 DEMAND
 SUPPLY
 COST
 PRODUCT
 MARKETS
 EXCHANGE RATES
 INFLATION ETC
CONCLUSION

 APPLICATION OF ECONOMIC THEORIES


TO THE PROBLEM OF BUSINESS NOT ONLY
GUIDES ASSIST IN THE PROCESS OF
DECISION MAKING BUT ALSO CONTRIBUTE
A GOOD DEAL TO THE VALIDITY OF THE
DECISIONS
Complimentary goods

 The goods which are used jointly to satisfy


particular want
 Tea and sugar
 Petrol and car
 Bulb and electricity
 IF THE PRICE FOR COMLIMENTARY GOOD
RISES THAN DEMAND FOR OTHER GOOD
WILL FALL
Exceptions to law of demand

 INFERIOR GOODS
 IGNORANCE
 GOODS OF OSTENTATION STATUS
SYMBOL)
 EMERGENCY
FUTURE EXPECTATION OF RISE IN PRICE
GOOD TO BE BECOME SCARCE IN FUTURE
PAY BACK PERIOD

 DISADVANTAGES
 TIME VALUE OF MONEY IS IGNORED
 FORECASTING OF CASH INFLOWS IS NOT
EASY
 PROFITS AFTER PAY BACK PERIOD IS
IGNORED
 ADVANTAGES
 SIMPLE
 NO CALCULATIONS
DEFINATION PAY BACK PERIOD

 TIME REQUIRE TO RECOVER THE


INVESTMENT
 SHORTEST THE PAY BACK PERIOD BETTER
THE PROPOSAL
INVESTMENT DECISION
CAPITAL BUDGETING
 TECHNIQUES
 PAY BACK PERIOD
 NPV
 ACCOUNTING RATE OF RETURN
 IRR
 PROFITABILITY INDEX
CHANGES IN DEMAND

 WHAT HAPPEN TO THE DEMAND IF THERE IS ANY


CHANGE IN THE FACTORS OTHER THAN PRICE
 THERE IS SHIFT IN DEMAND CURVE
 THAT IS RIGHT OR LEFT
 IF THERE IS RIGHT WARD SHIFT THAN IT IS
INCREASE
 IF THERE IS LEFTWARD SHIFT THAN IT IS
DECREASE
 THE FACTORS WHICH CHANGES ARE
INCOME,TASTE,FASHION,PRICE OF RELATED
GOODS ETC
CHANGE IN DEMAND(CHANGE IN
QUANTITY DEMANDED)
 WHEN THERE IS CHANGE IN DEMAND DUE
TO PRICE OF THE COMMODITY ITSELF
 THE PROCESS IS CALLED EXTENSION AND
CONTACTION
 THERE IS THE MOVEMENT ALONG SAME
DD CURVE
 UPWARD MOVEMENT IS CALLED
CONTACTION AND DOWN WARD
MOVEMENT IS EXTENSION
ELASTICITY OF DEMAND

 RESPONSIVENESS OF DEMAND TO
CHANGE IN PRICE
TYPES OF ELASTICITY

 PRICE ELASTICITY
 INCOME ELASTICITY
 CROSS ELASTICITY
FACTORS AFFECTING ELASTICITY
OF DEMAND
 NATURE OF THE COMMODITY
 SUBTITUTES
 VARIETY OF USES
 DEFERRED CONSUMPTIONS
 HABITS
 INCOME GROUP
 PROPOTION OF INCOME SPENT
 LEVEL OF PRICES
NATIONAL INCOME

 NATIONAL INCOME IS THE MONEY VALUE


OF ALL FINAL GOODS AND SERVICES
PRODUCED IN COUNTRY DURING A
PERIOD OF ONE YEAR
MARKETS

 REFERS TO PARTICULAR PLACE WHERE


GOODS ARE PURCHASED AND SOLD
NPV

 PV INFLOWS – PV CASH OUTFLOWS


MARKETS

 BUT IN ECONOMICS MARKETS IS USED IN A


WIDE SPREAD PERSPECTIVE
 IN ECONOMICS MARKET DOES NOT REFER
TO PARTICULAR PLACE BUT THE WHOLE
AREA WHERE THE BUYERS AND SELLERS
OF THE PRODUCT ARE SPREAD
ACCORDING TO PROF COURNAT

 ECONOMIST UNDERSTAND MARKETS NOT


ANY PLACE IN WHICH GOODS ARE
BOUGHT AND SOLD BUT WHOLE OF THE
REGION IN WHICH BUYERS AND SELLERS
ARE IN SUCH FREE INTERCOURSE WITH
ONE ANOTHER
MONOPOLY

 ONE SELLER
 LARGE NO OF BUYERS
 NO CLOSE SUBSTITUTE OF THE PRODUCT
 STRONG BARRIERS TO ENTRY
 FIRM IS THE PRICE MAKER
 PRICE ELASTICITY IS VERY LOW
 PRICE DISCRIMINATION
 NO SELLINF COST
CHARACTERSTICS OF MARKETS

 AN AREA
 PRODUCT
 BUYERS AND SELLERS
 FREE COMPETITION
 ONE PRICE
FORMS OF MARKET STRUCTURE

 PERFECT COMPETITION
 MONOPOLY
 DUOPOLY
 OLIGOPOLY
 MONOPOLISTIC COMPETITION
CHARACTERSTICS OF PERFECT
COMPETITION
 LARGE NO OF BUYERS AND SELLERS
 FREE ENTRY FREE EXIT
 HOMOGENEOUS PRODUCT
 PROFIT MAXIMIZATION GOAL
 PERFECT MOBILITY OF GOODS AND FACTORS
 PERFECT KNOWLEDGE OF MARKET
CONDITION
 ABSENCE OF TRANSPORT COST
 ABSENCE OF SELLING COST
PURE COMPETITION AND
PERFECT COMPETITION
 FIRST FOUR CONDITIONS PURE
COMPETITION
 ADDITIONAL FOUR CONDITION PURE
COMPETITION
CHARACTERSTICS OF
MONOPOLISTIC COMPETITION
MANY NO OF SELLERS
LARGE NO OF BUYERS
FREE ENTRY FREE EXIT
PRODUCT DIFFERENTITION
FIRM HAS SOME CONTROL OVER THE PRICE
HIGH SELLING COST
PRICE LASTICITY IS VERY HIGH
REAL MARKET
INDIFFERENCE CURVE

 THE INDIFFERENCE CURVE ANALYSIS


MEASURES UTILITY ORDINALLY
 IT EXPLAINS CONSUMER BEHAVIOUR IN
TERMS OF HIS PREFERENCE
 IT IS A LOCUS OF POINTS REPRESENTING
PAIRS OF QUANTITIES BETWEEN WHICH
THE INDIVIDUAL IS INDIFFERENT
INDIFFERENCE CURVE

 A SINGLE INDIFFERENCE CURVE


CONCERNS ONLY ONE LEVEL OF
SATISFACTION
 IT IS A LIST OF COMBINATION OF TWO
COMMODITIES EACH COMBINATION
PROVIDE SAME LEVEL OF SATISFACTION
 SO THE CUSTOMER IS INDIFFERENT WHILE
MAKING ANY CHOICE
INDIFFERENCE SCHEDULE

 COMBINATIONS X Y
 1 1 18
 2 2 13
 3 3 9
 4 4 6
 5 5 4
 6 6 3
PROPERTIES OF INDIFFERNCE
CURVE
 1 A HIGHER INDIFFERENCE CURVE TO THE
RIGHT OF ANOTHER REPRESENTS A
HIGHER LEVEL OF SATISFACTION
 THE SLOPE OF INDIFFERNCE CURVE IS
NEGATIVE
 INDIFFERENCE CURVES CAN NEITHER
TOUCH NOR INTERSECT EACH OTHER
 AN INDIFFERECE CURVE IS CONVEX TO
THE ORIGIN
 Price qty demand
 2 20
 10 19

 Demand is highly in elastic

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