MANAGERIAL ECONOMICS AND ECONOMICS

1. UNIT – I
MANAGERIAL ECONOMICS
Dr.N.R.SARAVANAN
MBA, MBA, MA (Yoga), PGDHRM, M.Phil, Ph.D,

2. MANAGERIAL ECONOMICS
• Branch of Economics.
• ‘Managerial Economics is the study of Economic
Theories, Principles and Concepts which is used
in Managerial Decision Making.’
• ‘Managerial Economics is the Application of
various Theories, Concepts and Principles of
Economics in the Business Decisions.’
• It also Includes ‘The Application of Mathematical
and Statistical tools in Management decisions.’

3. Managerial Economics
Economic
Theories,
Principles
and
Concepts.
Managerial
Decision
Making.
Application
Application of Mathematical
And Statistical tools
Application

4. MANAGERIAL ECONOMICS
ManagerialDecisions
Choice of product
Choice of production method
Choice of price, Etc…
Managerial Economics
‘Application of Economic
Concepts, Theories and
Analytical tools to find
solutions for managerial
problems.
Application of
Economicconcepts,
Theories and
Principles in
decision Making
Application of
Analytical tools
such as,
Mathematicaland
Statistical tools

5. Managerial Economics
• Economics.
– Theories
– Principles
– Concepts
• Decision Making.
– Selection of best alternative out of various possible
alternatives.
Risk & Uncertainty

6. Economics
Economics: ‘A Queen of Social Sciences’
Economics ‘OIKOS’ ‘NOMOS’ (Greek Words)
‘OIKOS’
‘NOMOS’
‘HOUSE’
‘MANAGEMENT’
According to J.S. Mill Economics is “The practical science of
production and distribution of wealth.”
‘It is the study of How people produce and spend
income.’

7. ADAM SMITH:
The Father of Economics
Who is called father of Economics?

8. ECONOMICS
It talks about ‘Economic Activity’
and ‘Economic Problem’.
‘It is the Study of Logic choice between Scarce
resources and unlimited wants’
 ‘Economics is to get the answer to the basic
questions of an economy such as, What to
produce?, How to produce? And for whom to
produce?’
 ‘Economics is the social science that is
concerned with the production, distribution,
and consumption of goods and services.’

9. ECONOMICS
There are Two Branches
Micro Economics: Means ‘Small’ or
‘Individual’.
The term ‘MICRO’ comes from the Greek
word ‘MIKROS’ Which means ‘Small’ or
‘Individual’.
Macro Economics: Means ‘Group’ or
‘Whole’. The term ‘MACRO’ comes from the
Greek word ‘MAKROS’ Which means
‘Large’ or ‘Whole’.

10. MICRO
ECONOMICS
• Micro Economics: ‘It is the study of
particular firms, particular households,
individual prices, wages, incomes, individual
industries, particular industries.”
• Some of the theories which come under
Micro Economics,
• Theory of Individual/Market Demand.
 Theory of Production and Cost.
 Theory of Markets and price.
 Theory of profit, Etc…

11. MACRO
ECONOMICS
• Macro Economics: ‘It deals not with
individual quantities as such but with
aggregates of these quantities, not with
individual incomes but with national
income.’
• Some of the theories which come under Macro
Economics,
 Theory of total output and employment.
 General price level.
 Theory of Inflation.
 Theory of trade cycles
 Economic growth, Etc…

12. Economics
1. Comprehensive and
wider scope
2. It has both Micro and
Macro in nature
3. It is both Normative
and positive science
4. It is concerned with
the formulation of
theories and
principles
5. It discusses general
problems
Managerial Economics
1.Narrow and limited scope
2.It is essentially Micro in
nature and Macro in analysis
3.It is mainly a Normative
science
4.It is concerned with the
application of theories and
principles of economics
5.It discusses Individual
problems
DIFFERENCE BETWEEN MANAGERIAL
ECONOMICS AND ECONOMICS

13. NATURE OF MANAGERIAL
ECONOMICS
 Science as well as Art of decision making.
 It is essentially Micro in nature but
Macro in analysis.
 It is mainly a Normative science but
positive in analysis.
 It is concerned with the application of
theories and principles of economics.
 It discusses Individual problems.
 It is dynamic in nature not a Static.
 It discuss the economic behavior of a firm.
 It concentrates on optimum utilization of
resources.

14. SCOPE OF MANAGERIAL
ECONOMICS
 Objectives of a Firm.
 Demand Analysis and Forecasting.
 Production and cost analysis.
 Pricing decisions.
 Profit management.
 Capital management.
 Market structure.
 Inflation and economic conditions.

15. MANAGERIAL ECONOMICS AND
DECISION MAKING
• Decision making:
• Decision making on internal affairs.
• Decision making on external affairs.
Internal affairs talk on internal environment
which consists of internal factors such as,
Production, Financial, Marketing and Human
resource related decisions.
External Affairs talk on external environment
which consists of external factors such as,
PEST related decisions.

16. DECISION MAKING
• Uncertainty:
Nothing can be expectable because of
the constant changes in the environment
both internally as well as externally.
• Risk:
It is the situation which comes under
uncertainty.

17. Evaluatingresults
Testing of
Hypothesis
Analysis of data using Basic Principles
of economics and Quantitative
Techniques.
Data collection
Formulationof
hypothesis
Defining the
problem
CONCLUSION FOR
DECISIONS.

18.  Opportunity cost principle. Marginalism
principle.
 Equi-marginalism principle. Incremental
principle.
 Time perspective principle. Discounting
principle.
Basic Principles of Managerial Economics

19. MANAGERIAL ECONOMICS RELATIONSHIP
WITH OTHER DISCIPLINES:
• Many new subjects have evolved in recent
years due to the interaction among basic
disciplines. managerial economics can be
taken as the best example of such a
phenomenon among social sciences.
Hence it is necessary to trace its roots
and relation ship with other disciplines.

20. 1. Relationship with economics
2. Management theory and accounting
3. Managerial Economics and mathematics
4. Managerial Economics and Statistics
5. Managerial Economics, Operations Research
6. Managerial Economics and the theory of
Decision- making
7. Managerial Economics and Computer
Science:

21. 1. RELATIONSHIP WITH ECONOMICS:
• The relationship between managerial economics
and economics theory may be viewed form the
point of view of the two approaches
• Micro Economics and Marco Economics.
• Microeconomics is the study of the economic behavior
of individuals, firms and other such micro
organizations. Managerial economics is rooted in
Micro Economic theory.
• Managerial Economics makes use to several Micro
Economic concepts such as marginal cost, marginal
revenue, elasticity of demand as well as price theory and
theories of market structure to name only a few.
• It deals with the analysis of national income, the level of
employment, general price level, consumption and
investment in the economy and even matters related to
international trade, Money, public finance, etc.

22. 2. MANAGEMENT THEORY AND
ACCOUNTING:
• Managerial economics has been influenced by the
developments in management theory and accounting
techniques. Accounting refers to the recording of
pecuniary transactions of the firm in certain books
• . A proper knowledge of accounting techniques
is very essential for the success of the firm
because profit maximization is the major
objective of the firm.
• Managerial Economics requires a proper knowledge
of cost and revenue information and their
classification.
• A student of managerial economics should be familiar
with the generation, interpretation and use of
accounting data. The focus of accounting within the
firm is fast changing from the concepts of store
keeping to that if managerial decision making, this has
resulted in a new specialized area of study called
“Managerial Accounting”.

23. MANAGERIAL ECONOMICS AND
MATHEMATICS:
• The use of mathematics is significant for
managerial economics in view of its profit
maximization goal long with optional use of
resources.
• The major problem of the firm is how to minimize
cost, hoe to maximize profit or how to optimize
sales.
• Mathematical concepts and techniques are widely
used in economic logic to solve these problems
• Mathematical symbols are more convenient to
handle and understand various concepts like
incremental cost, elasticity of demand etc.,
Geometry, Algebra and calculus are the major
branches of mathematics which are of use in
managerial economics.

24. 4. MANAGERIAL ECONOMICS AND
STATISTICS:
• Managerial Economics needs the tools of statistics
in more than one way.
• A successful businessman must correctly estimate the
demand for his product. He should be able to analyses
the impact of variations in tastes, Fashion and changes
in income on demand only then he can adjust his
output.
• Statistical methods provide and sure base for decision-
making. Thus statistical tools are used in collecting
data and analyzing them to help in the decision
making process.
• Managerial Economics also make use of correlation
and multiple regressions in related variables like price
and demand to estimate the extent of dependence of
one variable on the other. The theory of probability is
very useful in problems involving uncertainty.

25. 5. MANAGERIAL ECONOMICS AND
OPERATIONS RESEARCH:
• Operation research provides a scientific
model of the system and it helps
managerial economists in the field of
product development, material
management, and inventory control,
quality control, marketing and demand
analysis. The varied tools of operations
Research are helpful to managerial
economists in decision- making.

26. 6. MANAGERIAL ECONOMICS AND THE
THEORY OF DECISION- MAKING:
• The Theory of decision-making is a new field of
knowledge grown in the second half of this century.
• Most of the economic theories explain a single goal
for the consumer i.e., Profit maximization for the
firm. But the theory of decision-making is
developed to explain multiplicity of goals and lot of
uncertainty.
• As such this new branch of knowledge is useful to
business firms, which have to take quick decision in
the case of multiple goals.
• Viewed this way the theory of decision making is
more practical and application oriented than the
economic theories.

27. • Computers have changes the way of the
world functions and economic or business
activity is no exception.
• Computers are used in data and accounts
maintenance, inventory and stock controls
and supply and demand predictions.
• What used to take days and months is done in
a few minutes or hours by the computers
• In most countries a basic knowledge of
computer science, is a compulsory
programme for managerial trainees.
7. Managerial Economics and Computer
Science:

28. LAW OF DEMAND
The Law of Demand States that,
other things being constant (Ceteris
Peribus), the demand for a good
extends with a decrease in price
and contracts with an increase in
price.
In other words, there is an
inverse relationship between
quantity demanded of a
commodity and its price.
The term other thing being constant
implies that income of the consumer,
his taste and preferences and price of
other related goods remains
constant.

29. CONCEPT OF DEMAND
Demand for a commodity refers to the desire to buy a commodity backed with
sufficient purchasing power and the willingness to spend.
For Example: You desire to have a Car, but you do not have enough money to buy
it. Then, this desire will remain just a wishful thinking, it will not be called demand.
If inspite of having enough money, you do not want to spend it on Car, demand
does not emerge.
The desire become demand only when you are ready to spend money to buy Car.

30. CONCEPT OF DEMAND
In Economics, demand refers to effective
demand, which implies three things:
a) Desire,
b) Means to purchase, and
c) On willingness to use those means for that
purchase

31. FEATURES OF DEMAND
1) Desires and Demand: Demand is the amount of
commodity for which a consumer has willingness
and ability to buy.
2) Demand and Price: Demand is always at a price.
Unless price is stated, the commodity has no
meaning. The consumer must know both the price
and the commodity.
3) Point of Time: The amount demanded must refer to
some period of time. Such as 10 kg of rice per week.
The amount demanded and price must refer to a
particular date.
4) Utility: Demand depend upon utility of the
commodity. A consumer is rational and demands
only those commodities which provide utility.

32. OBJECTIVES OF DEMAND
ANALYSIS
Objectives of Demand Analysis
Demand Forecasting Inventory Control
Production Planning Growth and Long Term Investment Programs
Sales Forecasting Economic Planning and Policy Making
Control of Business

33. OBJECTIVES OF DEMAND ANALYSIS
1) Demand Forecasting: Forecasting of demand is the art
of predicting demand for a product or a service at some
future date on the basis of certain present and past
behaviour patterns of some related events.
2) Production Planning: Demand analysis is prerequisite
for the production planning of a business firm.
Expansion of output of the firm should be based on the
estimates of likely demand, otherwise there may be
overproduction and consequent losses may have to be
faced.
3) Sales Forecasting: Sales forecasting is based on the
demand analysis.
4) Control of Business: For controlling the business, it is
essential to have a well conceived budgeting of costs and
profits that is based on the estimation of annual
demand/sales and prices.

34. OBJECTIVES OF DEMAND
5) Inventory Control: A satisfactory control of business
inventories requires satisfactory estimates of the
future requirements which can be traced through
demand analysis.
6) Growth and Long Term Investment Programs:
Demand analysis is necessary for determining the
growth rate of the firm and long-term investment
planning.
7) Economic Planning and Policy Making: Demand
analysis at macro level for the nation as a whole is
of great help, the government can determine its
imoprt and export policies in view of the long-term
demand forecasting and estimation for various
goods in the country,

35. STATEMENT
Other things remaining the same, the
quantity demanded of a commodity
is inversely related to its price

36. IN OTHER WORDS
if a price of a
commodity falls,
the quantity
demanded of it will
rise
if the price of the
commodity rises
its quantity
demanded will
decline

37. MATHEMATICAL INTEPRETATION
Law of demand expresses the functional
relationship
D = f(P) where,
P is price and
D is quantity demanded of a commodity

38. ASSUMPTIONS
Law of Demand assumes that there is no change in
• Price of related commodities
• Income of the consumer
• Taste and preferences, customs, habit and fashion
of the consumer
• Size of population
• Expectation regarding future change in price

39. DEMAND SCHEDULE
Tabular presentation of various combinations of
price and quantity supplied

40. DEMAND CURVE
Graphical representation of a demand schedule

41. DEMAND SCHEDULE & DEMAND
CURVE
Demand Schedule is that schedule which expresses the relation
between different quantities of the commodity demanded at different
price.
According to Samuelson, “The table relating to price and quantity
demanded is called the demand schedule.
Demand Curve is simply a graphic representation of demand schedule.
According to Leftwitch, “The Demand Curve represents the maximum
quantities per unit of time that consumer will take at various prices.
Demand Schedule and Demand Curve are of two types
1) Individual Demand Schedule & Individual Demand Curve
2) Market Demand Schedule & Market Demand Curve

42. INDIVIDUAL DEMAND SCHEDULE &
INDIVIDUAL DEMAND CURVE
Refers to a tabular representation of quantity of products
demanded by an individual at different prices and time.

43. MARKET DEMAND SCHEDULE &
MARKET DEMAND CURVE
In every market, there are several consumers of a
commodity. Market demand schedule shows total demand
of all the consumers in the market at different prices of the
commodity.

44. EXCEPTIONS AND LIMITATIONS
• Inferior goods/ Griffen goods
• Goods having prestige value
• Price expectation
• Fear of shortage
• Change in income
• Change in fashion
• Basic necessities of life