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Managerial Economics-
Definitions
Managerial Economics
• Is the application of economic theory and
methodology to business administration practice.
Managerial Economics
Nature and
Business Decision Making Problems Characteristics.
• Micro in nature.
Decision Science
Traditional Economics Tools and Techniques of analysis • Business theory of markets & private
Theory and Methodology LP Technique, Statistical estimate,
Macro, Micro Game Theory etc enterprises.
• Pragmatic in approach.
Managerial Economics • Normative in nature.
Application of Economic theory and methodology to solving problems
• It uses analytical tools, concepts and notions
from other disciplines.
Optimal solutions to business problems
• Macro analysis
Scope of Managerial
Basic Economic Tools
Economics
• Opp.cost principles.
• Demand analysis& forecasting
• Incremental principles.
• Cost & production Analysis.
• Principles of time perspectives.
• Pricing decisions, policies & practices.
• Discounting principles.
• Profit Management.
• Equi-Mariginal principles.
• Capital Management.
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External-Environmental
Specific functions.
studies.
• STEEPG. • Sales forecasting.
• Industrial Market Research.
• Prices. • Economic analysis of competitors.
• National income & output. • Pricing problems.
• Capital projects.
• Volume of trade. • Production programmes.
• Investment security analysis.
• Environmental forecasting.
• Economics intelligences.
• Participating in public debate.
Demand Forecasting
Demand Schedule Table & Graph
Price in Quantity Demand
(Rs) (units)
D
Symethod Statistical Method 5 5 10
4
4 20
3
Price
3 30
2
1
2 40
Consumer 0
D 1 50
Opinion poll methods Trend Projection Eco. method 10 20 30 40 50
Survey
Qty. demanded
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Ed < 1
p
Price
P1
0 x
Q Q1
Qty. demanded
Ed = 1
P
D
p
P1
Ed<1
price
P1
Price
D D
0 Q Q1 0 Q Q1
Qty. demanded
Qty. demanded
p D
P2
Price
Price
P1
0 Q 0 Q1 Q2 Q3 Q4
Qty. demanded Qty. demanded
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Fixed Costs :
Various Concepts of Costs Costs which remain constant irrespective of
increase or decrease in production up to
Cost: particular level of activity.
It is defined as the value of all inputs used in the
production process. i.e. Example:
•Rent,
•Land •Interest on capital
•Labour •Salary to permanent staff
•Raw materials •Certain taxes
•Energy •Interest to loan
•Input •Dividend to share holders
•Depreciation
•Transport •Maintenance
Fixed Costs
Output
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Market
Cost / Revenue
Perfect Imperfect
(Large Number of Sellers)
TFC
Fixed cost
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Govt Sector
Y= C+I Y = C+I+G
Household sector
Business Sector
Consumption Expenditure
Factor Payments
Govt Sector
Prosperity
Prosperity
Business Condition
Business Sector
Y=C+I+G+(X-M) Household Sector
Consumption Expenditure