Introduction to managerial economics

Economy

The economy is an institutional framework through which individuals in a society together with the firms and the industry in large coordinate to meet their desires and ends The study of an economy is known as economics which is also called a social science since it studies the economic behavior of people the way and means by which they achieve their ultimate objectives

An economic institution is a physical or mental structure that significantly influences the economic decisionscorporations governmentsfirms are all the economic institutions There are various factors which affect the working of these institutions namely

a Cultural

b economic factors

c political factors

Political factors are how and to what degree government intervenes in the economy Specifically political factors include areas such as tax policy labour law environmental law trade restrictions tariffs and political stability Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads) Furthermore governments have great influence on the healtheducation and infrastructure of a nation

Economic factors include economic growth interest rates exchange rates and the inflation rate These factors have major impacts on how businesses operate and make decisions For example interest rates affect a firms cost of capital and therefore to what extent a business grows and expands Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

Social factors include the cultural aspects and include health consciousness population growth rate age distribution career attitudes and emphasis on safety Trends in social factors affect the demand for a companys products and how that company operates For example an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor) Furthermore companies may change various management strategies to adapt to these social trends (such as recruiting older workers)

Technological factors include technological aspects such as RampD activity automation technology incentives and the rate of technological change They can determine barriers to entry minimum efficient production level and influence outsourcing decisions Furthermore technological shifts can affect costs quality and lead to innovation

Environmental factors include ecological and environmental aspects such as weather climate and climate change which may especially affect industries such as tourism farming and insurance Furthermore growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer both creating new markets and diminishing or destroying existing ones

Legal factors include discrimination law consumer law antitrust law employment law and health and safety law These factors can affect how a company operates its costs and the demand for its products

Complexity of modern business world Main characteristics of market economies

aindividuals pursue their own self-interest buying and sellingwhat seems best for themselves and their familiesbpeople respond to incentivescprices are set in the open markets in which suppliers compete to sell to potential buyersdpeople earn their living by selling their serviceseall these activities are governed by a legal framework largely created and administered by the state

Modern economies are based on specialization and division of labourwhich necessitate the exchange of goods and services Exchange takes place in markets and is facilitated by the use of money Market work to coordinate millions of individuals decentralized decisions

There are three key issues which are faced by all the economies

a What should be produced how should the nation lsquos scarce resources be allocated between the various possible kinds of productionbefficient production the resources which are available should be utilized in such a way that there is no wastage and the resources should be fully employed

ceconomic growth every production process aims at achieving the desired rate of economic growth

Reasons for complex business world Scarcity of resources Unlimited desires and wants Production choices Globalization

Globalization market economies are constantly changing as a result of the development of new products and the new technologies The two major causes of globalization are the rapid reduction in transportation costs and the revolution in information and technology This has led to globalizing markets thus making business complex

Also the growing complexity of business can be attributed to the growth of large scale industries diversification of industries corporate firms growth of multinational corporations mergers and take oversThus these circumstances have led to the increased the application of economic concepts theories and tools of economic analysis in this area Appropriate business decision-making requires a clear understanding of maket conditions market fundamentals and the external business environment This requires an intensive and extensive analysis of market conditions in the product input and the financial markets Economic tools theories and logical analysis have been developed to analyze and predict market behavior

Managerial economics Economic theories and analytical tools which are widely used in business buseness decision making have crystallized into a separate branch of management studies called managerial economics

Definitions

According to McNair and Meriam Managerial Economics consists of the use of economic modes of thought to analyse business situation

Spencer and Siegelman have defined Managerial Economics as the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management

Managerial Economics as the discipline which deals with the application of economic theory to business management Managerial

Economics thus lies on the borderline between economics and business management and serves as a bridge between economics and business management

Characteristics of managerial economics

Managerial Economics is micro-economic in character

Managerial Economics largely uses that body of economic concepts and principles which is known as Theory of the firm or Economics of the firm

Managerial Economics is pragmatic It is concerned with analytical tools that are useful in practice or that promise to improve decision making in the future

Managerial economics fills the gap between the abstract economic theories and their application in the real business world situations

Managerial economics uses the economic tools and analyses to

a Identify their problems and achieve their goals

b collecting the relevant data from the market and analyze them systematically to arrive at the conclusion

c draw the relevant conclusions and apply to the current scenario

d finally arrive at some suggestions for future course s actions

Scope of managerial economics

Managerial economics is the study of allocation ofresources available to a firm or a unit of management among the activities of thatunit Managerial economics is concerned with the application of economic conceptsand analysis to the problem of formulating rational managerial decisions

There are four groups of problem in both decisions-making and forward planning

Resource Allocation Scare resources have to be used with utmost efficiency toget optimal results These include production programming and problem oftransportation etc How does resource allocation take place within a firm Naturally a manager decides how to allocate resources to their respective uses within the firmInventory and queuing problem Inventory problems involve decisions aboutholding of optimal levels of stocks of raw materials and finished goods over aperiod These decisions are taken by considering demand and supply conditionsQueuing problems involve decisions about installation of additional machines orhiring of extra labour in order to balance the business lost by not undertaking these activitiesPricing Problem Fixing prices for the products of the firm is an importantdecision-making process Pricing problems involve decisions regarding various methods of prices to be adoptedInvestment Problem Forward planning involves investment problems These areproblems of allocating scarce resources over time For example investing in newplants how much to invest sources of funds etc

Study of managerial economics essentially involves the analysis of certain majorsubjects like1048576 The business firm and its objectives1048576 Demand analysis estimation and forecasting1048576 Production and Cost analysis1048576 Pricing theory and policies1048576 Profit analysis with special reference to break-even point1048576 Capital budgeting for investment decisions1048576 CompetitionDemand analysis and forecasting help a manager in the earliest stage in choosingthe product and in planning output levels A study of demand elasticity goes a longway in helping the firm to fix prices for its products The theory of cost also formsan essential part of this subject Estimation is necessary for making outputvariations with fixed plants or for the purpose of new investments in the same lineof production or in a different venture The firm works for profits and optimal or

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

Technological factors include technological aspects such as RampD activity automation technology incentives and the rate of technological change They can determine barriers to entry minimum efficient production level and influence outsourcing decisions Furthermore technological shifts can affect costs quality and lead to innovation

Environmental factors include ecological and environmental aspects such as weather climate and climate change which may especially affect industries such as tourism farming and insurance Furthermore growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer both creating new markets and diminishing or destroying existing ones

Legal factors include discrimination law consumer law antitrust law employment law and health and safety law These factors can affect how a company operates its costs and the demand for its products

Complexity of modern business world Main characteristics of market economies

aindividuals pursue their own self-interest buying and sellingwhat seems best for themselves and their familiesbpeople respond to incentivescprices are set in the open markets in which suppliers compete to sell to potential buyersdpeople earn their living by selling their serviceseall these activities are governed by a legal framework largely created and administered by the state

Modern economies are based on specialization and division of labourwhich necessitate the exchange of goods and services Exchange takes place in markets and is facilitated by the use of money Market work to coordinate millions of individuals decentralized decisions

There are three key issues which are faced by all the economies

a What should be produced how should the nation lsquos scarce resources be allocated between the various possible kinds of productionbefficient production the resources which are available should be utilized in such a way that there is no wastage and the resources should be fully employed

ceconomic growth every production process aims at achieving the desired rate of economic growth

Reasons for complex business world Scarcity of resources Unlimited desires and wants Production choices Globalization

Globalization market economies are constantly changing as a result of the development of new products and the new technologies The two major causes of globalization are the rapid reduction in transportation costs and the revolution in information and technology This has led to globalizing markets thus making business complex

Also the growing complexity of business can be attributed to the growth of large scale industries diversification of industries corporate firms growth of multinational corporations mergers and take oversThus these circumstances have led to the increased the application of economic concepts theories and tools of economic analysis in this area Appropriate business decision-making requires a clear understanding of maket conditions market fundamentals and the external business environment This requires an intensive and extensive analysis of market conditions in the product input and the financial markets Economic tools theories and logical analysis have been developed to analyze and predict market behavior

Managerial economics Economic theories and analytical tools which are widely used in business buseness decision making have crystallized into a separate branch of management studies called managerial economics

Definitions

According to McNair and Meriam Managerial Economics consists of the use of economic modes of thought to analyse business situation

Spencer and Siegelman have defined Managerial Economics as the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management

Managerial Economics as the discipline which deals with the application of economic theory to business management Managerial

Economics thus lies on the borderline between economics and business management and serves as a bridge between economics and business management

Characteristics of managerial economics

Managerial Economics is micro-economic in character

Managerial Economics largely uses that body of economic concepts and principles which is known as Theory of the firm or Economics of the firm

Managerial Economics is pragmatic It is concerned with analytical tools that are useful in practice or that promise to improve decision making in the future

Managerial economics fills the gap between the abstract economic theories and their application in the real business world situations

Managerial economics uses the economic tools and analyses to

a Identify their problems and achieve their goals

b collecting the relevant data from the market and analyze them systematically to arrive at the conclusion

c draw the relevant conclusions and apply to the current scenario

d finally arrive at some suggestions for future course s actions

Scope of managerial economics

Managerial economics is the study of allocation ofresources available to a firm or a unit of management among the activities of thatunit Managerial economics is concerned with the application of economic conceptsand analysis to the problem of formulating rational managerial decisions

There are four groups of problem in both decisions-making and forward planning

Resource Allocation Scare resources have to be used with utmost efficiency toget optimal results These include production programming and problem oftransportation etc How does resource allocation take place within a firm Naturally a manager decides how to allocate resources to their respective uses within the firmInventory and queuing problem Inventory problems involve decisions aboutholding of optimal levels of stocks of raw materials and finished goods over aperiod These decisions are taken by considering demand and supply conditionsQueuing problems involve decisions about installation of additional machines orhiring of extra labour in order to balance the business lost by not undertaking these activitiesPricing Problem Fixing prices for the products of the firm is an importantdecision-making process Pricing problems involve decisions regarding various methods of prices to be adoptedInvestment Problem Forward planning involves investment problems These areproblems of allocating scarce resources over time For example investing in newplants how much to invest sources of funds etc

Study of managerial economics essentially involves the analysis of certain majorsubjects like1048576 The business firm and its objectives1048576 Demand analysis estimation and forecasting1048576 Production and Cost analysis1048576 Pricing theory and policies1048576 Profit analysis with special reference to break-even point1048576 Capital budgeting for investment decisions1048576 CompetitionDemand analysis and forecasting help a manager in the earliest stage in choosingthe product and in planning output levels A study of demand elasticity goes a longway in helping the firm to fix prices for its products The theory of cost also formsan essential part of this subject Estimation is necessary for making outputvariations with fixed plants or for the purpose of new investments in the same lineof production or in a different venture The firm works for profits and optimal or

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

ceconomic growth every production process aims at achieving the desired rate of economic growth

Reasons for complex business world Scarcity of resources Unlimited desires and wants Production choices Globalization

Globalization market economies are constantly changing as a result of the development of new products and the new technologies The two major causes of globalization are the rapid reduction in transportation costs and the revolution in information and technology This has led to globalizing markets thus making business complex

Also the growing complexity of business can be attributed to the growth of large scale industries diversification of industries corporate firms growth of multinational corporations mergers and take oversThus these circumstances have led to the increased the application of economic concepts theories and tools of economic analysis in this area Appropriate business decision-making requires a clear understanding of maket conditions market fundamentals and the external business environment This requires an intensive and extensive analysis of market conditions in the product input and the financial markets Economic tools theories and logical analysis have been developed to analyze and predict market behavior

Managerial economics Economic theories and analytical tools which are widely used in business buseness decision making have crystallized into a separate branch of management studies called managerial economics

Definitions

According to McNair and Meriam Managerial Economics consists of the use of economic modes of thought to analyse business situation

Spencer and Siegelman have defined Managerial Economics as the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management

Managerial Economics as the discipline which deals with the application of economic theory to business management Managerial

Economics thus lies on the borderline between economics and business management and serves as a bridge between economics and business management

Characteristics of managerial economics

Managerial Economics is micro-economic in character

Managerial Economics largely uses that body of economic concepts and principles which is known as Theory of the firm or Economics of the firm

Managerial Economics is pragmatic It is concerned with analytical tools that are useful in practice or that promise to improve decision making in the future

Managerial economics fills the gap between the abstract economic theories and their application in the real business world situations

Managerial economics uses the economic tools and analyses to

a Identify their problems and achieve their goals

b collecting the relevant data from the market and analyze them systematically to arrive at the conclusion

c draw the relevant conclusions and apply to the current scenario

d finally arrive at some suggestions for future course s actions

Scope of managerial economics

Managerial economics is the study of allocation ofresources available to a firm or a unit of management among the activities of thatunit Managerial economics is concerned with the application of economic conceptsand analysis to the problem of formulating rational managerial decisions

There are four groups of problem in both decisions-making and forward planning

Resource Allocation Scare resources have to be used with utmost efficiency toget optimal results These include production programming and problem oftransportation etc How does resource allocation take place within a firm Naturally a manager decides how to allocate resources to their respective uses within the firmInventory and queuing problem Inventory problems involve decisions aboutholding of optimal levels of stocks of raw materials and finished goods over aperiod These decisions are taken by considering demand and supply conditionsQueuing problems involve decisions about installation of additional machines orhiring of extra labour in order to balance the business lost by not undertaking these activitiesPricing Problem Fixing prices for the products of the firm is an importantdecision-making process Pricing problems involve decisions regarding various methods of prices to be adoptedInvestment Problem Forward planning involves investment problems These areproblems of allocating scarce resources over time For example investing in newplants how much to invest sources of funds etc

Study of managerial economics essentially involves the analysis of certain majorsubjects like1048576 The business firm and its objectives1048576 Demand analysis estimation and forecasting1048576 Production and Cost analysis1048576 Pricing theory and policies1048576 Profit analysis with special reference to break-even point1048576 Capital budgeting for investment decisions1048576 CompetitionDemand analysis and forecasting help a manager in the earliest stage in choosingthe product and in planning output levels A study of demand elasticity goes a longway in helping the firm to fix prices for its products The theory of cost also formsan essential part of this subject Estimation is necessary for making outputvariations with fixed plants or for the purpose of new investments in the same lineof production or in a different venture The firm works for profits and optimal or

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

Economics thus lies on the borderline between economics and business management and serves as a bridge between economics and business management

Characteristics of managerial economics

Managerial Economics is micro-economic in character

Managerial Economics largely uses that body of economic concepts and principles which is known as Theory of the firm or Economics of the firm

Managerial Economics is pragmatic It is concerned with analytical tools that are useful in practice or that promise to improve decision making in the future

Managerial economics fills the gap between the abstract economic theories and their application in the real business world situations

Managerial economics uses the economic tools and analyses to

a Identify their problems and achieve their goals

b collecting the relevant data from the market and analyze them systematically to arrive at the conclusion

c draw the relevant conclusions and apply to the current scenario

d finally arrive at some suggestions for future course s actions

Scope of managerial economics

Managerial economics is the study of allocation ofresources available to a firm or a unit of management among the activities of thatunit Managerial economics is concerned with the application of economic conceptsand analysis to the problem of formulating rational managerial decisions

There are four groups of problem in both decisions-making and forward planning

Resource Allocation Scare resources have to be used with utmost efficiency toget optimal results These include production programming and problem oftransportation etc How does resource allocation take place within a firm Naturally a manager decides how to allocate resources to their respective uses within the firmInventory and queuing problem Inventory problems involve decisions aboutholding of optimal levels of stocks of raw materials and finished goods over aperiod These decisions are taken by considering demand and supply conditionsQueuing problems involve decisions about installation of additional machines orhiring of extra labour in order to balance the business lost by not undertaking these activitiesPricing Problem Fixing prices for the products of the firm is an importantdecision-making process Pricing problems involve decisions regarding various methods of prices to be adoptedInvestment Problem Forward planning involves investment problems These areproblems of allocating scarce resources over time For example investing in newplants how much to invest sources of funds etc

Study of managerial economics essentially involves the analysis of certain majorsubjects like1048576 The business firm and its objectives1048576 Demand analysis estimation and forecasting1048576 Production and Cost analysis1048576 Pricing theory and policies1048576 Profit analysis with special reference to break-even point1048576 Capital budgeting for investment decisions1048576 CompetitionDemand analysis and forecasting help a manager in the earliest stage in choosingthe product and in planning output levels A study of demand elasticity goes a longway in helping the firm to fix prices for its products The theory of cost also formsan essential part of this subject Estimation is necessary for making outputvariations with fixed plants or for the purpose of new investments in the same lineof production or in a different venture The firm works for profits and optimal or

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

Managerial economics is the study of allocation ofresources available to a firm or a unit of management among the activities of thatunit Managerial economics is concerned with the application of economic conceptsand analysis to the problem of formulating rational managerial decisions

There are four groups of problem in both decisions-making and forward planning

Resource Allocation Scare resources have to be used with utmost efficiency toget optimal results These include production programming and problem oftransportation etc How does resource allocation take place within a firm Naturally a manager decides how to allocate resources to their respective uses within the firmInventory and queuing problem Inventory problems involve decisions aboutholding of optimal levels of stocks of raw materials and finished goods over aperiod These decisions are taken by considering demand and supply conditionsQueuing problems involve decisions about installation of additional machines orhiring of extra labour in order to balance the business lost by not undertaking these activitiesPricing Problem Fixing prices for the products of the firm is an importantdecision-making process Pricing problems involve decisions regarding various methods of prices to be adoptedInvestment Problem Forward planning involves investment problems These areproblems of allocating scarce resources over time For example investing in newplants how much to invest sources of funds etc

Study of managerial economics essentially involves the analysis of certain majorsubjects like1048576 The business firm and its objectives1048576 Demand analysis estimation and forecasting1048576 Production and Cost analysis1048576 Pricing theory and policies1048576 Profit analysis with special reference to break-even point1048576 Capital budgeting for investment decisions1048576 CompetitionDemand analysis and forecasting help a manager in the earliest stage in choosingthe product and in planning output levels A study of demand elasticity goes a longway in helping the firm to fix prices for its products The theory of cost also formsan essential part of this subject Estimation is necessary for making outputvariations with fixed plants or for the purpose of new investments in the same lineof production or in a different venture The firm works for profits and optimal or

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

near maximum profits depend upon accurate price decisions Theories regardingprice determination under various market conditions enable the firm to solve theprice fixation problems Control of costs proper pricing policies break-evenanalysis alternative profit policies are some of the important techniques in profitplanning for the firm which has to work under conditions of uncertainty Thusmanagerial economics tries to find out which course is likely to be the best for the firm under a given set of conditions

Managerial economics comprises both the micro and macro economics The areas of business issues to which the economic theories can be directly applied are divided into two catagories

a Operational or internal issues

bexternal or the environmental factors affecting the business world

Microeconomics applied to operational issues

There are various internal issues which affect the working of the business

1choice of business and the nature of productwhat to produce

2choice of size of the firmhow to much to produce

3choice of technology ie choosing the factor combinations

4how to promote sales

5how to manage inventory

6how to manage profit and capital

Micro economic theories which deal with these issues are

atheory of demand

btheory of production and production decions

canalysis of market structures and the pricing theory

dprofit analysis and profit management

E theory of caqpital and investment decision

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

Macro economics applied to business environment

There are various macro economi issues which affect the business environment these are

1the type of economic system prevailing

2general trends in productionemploymentincomepricessavings and investment

3 the structure of financial institutions

4trends in labor market ( the extent of productivity)

5the sophistication of the capital market

6political environment and the social system which has direct bearing on the production process and the distribution of goods and services within the economy

7issues related to foreing trade

Managerial economics is concerned with the economic environment which has a direct bearing on the business world It is important for any business manager to analyse the various macro economic variables so that they can take prudent business decisions The various industrial politicies continuously needs to be studied time and again to know the benefits and the norms which needs to be undertake

Some areas which has a direct bearing on the business world of any economy are concentration of economic power growth of monopoly state of technology existence of mass poverty taxation policylabour policy business cycles economic growth and economic factors

Macro economic issues

The various macroeconomic issues which affect the business decisions can be broadly categorized into following

issues related to macro variables general trends in the economic activities of the country investment climate trends in output and employment and the price trends These factors have a direct bearing on the prospects of a private business when a firm is planning to start up a new firm they must know the general trend of the economy

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets

Issues related to government policies the government polices needs to be understood time and again by the business manaers to update its strategy and planning in order to get the maximum profit

Issues related to foreign trade globalization has brought the countries closer to such an extent that the fluctuations in any one part of the world affects the others the recent example is of the recession in US in 2007the fluctuations in the exchange market also affects the domestic business directly therefore the trends in international arena needs to be closely examined by the business managers so that they can formulate policies of their firms accordingly The prospects in the international market needs to be carefully and continuously studied so that the maximum profit is achieved together with the presence in global markets