MANAGERIAL

ECONOMICS
 GENERAL TERMS
• Economics-The study in which mankind
organises itself to tackle the basic problem of
scarcity. All societies have more wants than
resources, a system must be devised to
allocate these resources between competing
ends.
• Scarcity- Situation where goods are limited
relative to desire
• Efficiency- The most judicious use of society’s
resources in satisfying people’s wants and
needs.
 Types of economies
•Market/capitalist/free/open/laissez –faire
Eg: USA

•Command/socialist/communist/planned
Eg: Russia, China

•Mixed
Eg: UK, Australia, Canada, Japan , India

Closed Economy
Eg: North Korea
 Managerial Economics
• It refers to application of economic
theory and the tools of analysis of
decision science to examine how an
organization can achieve its aim or
objectives more efficiently.
 Managerial Economics
Management decision problems

Economic theory: Decision sciences:

Macro economics Econometrics
Micro economics Mathematical economics

Managerial Economics
Application of Economic theory +Decision sciences
Result: Solution to Managerial problems
 Methods of Managerial Economics

The economic reasoning is derived on

generalizations . To derive two methods are
used in economics-
• Inductive method.
• Deductive method.
 Deductive method
• The deductive method is also called abstract
& analytical method.
1-Identify the problem
1
2-Defining technical terms
2 3- Making assumptions

3 10 4-Process of logical deduction to derive implications

5-Formulation of hypothesis
4 6-Making predictions and testing them
7-Predictions are in agreement with facts
5
8-Theory is discarded in favour of a superior alternat
6 9 9-predictions are in conflict with facts
10-Modifying assumptions
7 8
 Inductive method
• The Inductive method is also called empirical
method based on experience and observation.
1-Identify the problem
1
2-Data collection
2 9
3- Data processing to find out the relation

3 4-Develop a theory and refine it through statistical m

5-Making predictions and testing them
6-Predictions are in agreement with facts
4
7-Theory is discarded in favour of a superior alternat
8-Predictions are in conflict with facts

5 8 9-Collect more data

6 7
 Introduction to economic
Concepts
• Demand & Supply
• Production
• Consumption
• Price
• Elasticity
• Utility- Marginal, Cardinal, Ordinal.
 Types of Cost

Accounting cost Economic cost

 Cost
Accounting cost Economic cost
• Fixed Cost • Historical &
• variable cost replacement cost
• Out –of –pocket • Marginal cost
cost • Total cost
• Book cost • Average cost
• Separable • Short run & long run
• common cost cost
• Actual & opportunity
cost
• Past & future cost