UNIT 1 INTRODUCTION

Douglas managerial economics is concerned with the application of economic principles and methodologies to the decision making process within the firm or organisation. It seeks to establish rules and principles to facilitate the attainment of the desired economic goals of management

Application of Economic tools

Clear understanding of various concepts Helps in ascertaining the relevant variables and specifying relevant data Theories state relationship between two or more economic variables and events.

Scope of economics

Economics could be broadly classified as 1. Microeconomics 2. Macroeconomics

Microeconomics Applied to operational/internal issues Those issues or factors which are controlled by the management 1. Choice of business 2. Choice of new techniques 3. Choice of price 4. Choice of promotional activities 5. How to face competition 6. How to decide on new investments

Theories

Theory of Demand Theory of Production and Production decision Analysis of market Structure and Pricing theory Profit analysis & Management Theory of Capital & Investments

Macroeconomics Applied to Business Environment Those issues or factors which are uncontrolled by the management 1. Issues related to Macro variables 2. Issues related to Foreign Trade 3. Issues related to Government Policies

Relationship with Other Disciplines Mathematics Statistics Operations research Management Theory & Accountancy

TYPES OF BUSINESS ORGANISATION

Sole Trader Partnership Joint stock Company Co-Operatives Multinational Companies Government Companies Joint Hindu Family Business

Not for profit Organisations

Objectives and goals

An objective is a sub goal. It identifies a short-term, measurable step within a designated period of time that is moving toward achieving a long-term goal.

Goals are broad ,objectives are narrow. Goals are general intentions ; objectives are precise. Goals are intangible; objectives can be tangible or intangible. Goals can't be validated as is; objectives can be validated.

Objectives of the Firm

Profit Maximisation Market Leader Avoiding potential competitions Preventing government inventions Customers goodwill Financial soundness and liquidity Social responsibility

Decision making in Business

Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternatives. Every decision making process produces a final choice. The output can be an action or an opinion of choice. Application of Economic Theory to Business Practice 1. Theory of the firm 2. Cost concepts 3. Profit Concepts 4. Measurement of Economic Relationship 5. Predicting Economic quantities

Steps in Decision- Making

Specific Objectives

Identification of Problems

Search for alternatives

Evaluation of Alternatives

Feed Back

Results

Action

Choice of alternative

Decision Making Process

Fundamental concepts that aid Decision in Business

1.

2.
3. 4. 5.

Incremental Concept Concept of Time Perspective Discounting principle Opportunity Cost Equi-marginal Principle