Managerial Economics

By
Nachiket A Hanmantgad
KLES College of Business Administration
Nipani
 Syllabus
• Module 1 INTRODUCTION
• Module 2 CONSUMPTION ANALYSIS
• Module 3 PRODUCTION AND COST ANALYSIS
• Module 4 MARKET
• Module 5 BUSINESS CYCLE AND THEORY OF PROFIT
 Economics
Economics is a social science which studies
human behavior as a relationship between
numerous wants and scares resources

Resources :
•Money
•Land
•Water
•Air
•Human Resource
Why study economics ?
Household expenses INCOME

Other expenses Savings

 BEHAVIOUR
BEHAVIOUR POOR PERSON RICH PERSON

SHOPPING LOCAL MARKET BRANDED SHOPS MALLS

EATING SMALL HOTELS 5 STAR HOTEL

TAX NO INCOME TAX, GST ETC

TRAVELLING BUS, TRAIN CAR, FLIGHT

HOUSE SMALL HOUSE, RENTED HOUSE BIG HOUSE

AMENITIES BASIC AC , EXPENSIVE FURNITURES

MOBILE PHONE BASIC HIGH END

•Take best decision among the available alternative

COMPUTER NO/BASIC APPLE MAC
•To plan the future course of action
•To plan the investment decisions
INCOME 10,000/ MONTH 1,00,000/ MONTH
 GOVERNMENT
•Tax •Building
•Gover Schools,
nment Colleges
•Roads,
compa
Bridges,
nies Dams
suh as •Hospital
KSRTC, s
KEB, •Salary to
employe
Air
es
India, •People
Indian welfare
Railwa measure
ys s
 INTERLINKAGE
GOVERNM
ENT

EXPENDIT
INCOME URE
 ECONOMICS HAS TO BE STUDIED TO MAKE
DECISIONS
• TO PLAN THE SPENDINGS
• TO PLAN THE INVESTMENT DECISIONS
• TO PLAN THE SAVINGS
• FOR GOVERNMENT TO CONTROL PRICE RISE
• FOR MAKING PUBLIC WELFARE SCHEMES
 MANAGERIAL ECONOMICS
• Managerial Economics is applied economics in
the field of business management
• Making best use of available resources.
• It involves various analytical tools such as
Demand forecasting, Break even Point,
Inflation, etc that are useful in taking decisions.
 According to Haynes, Monte and Paul

• “Managerial Economics is economics applied

to decision making. It is special branch of
economics bridging the gap between abstract
theory and managerial practice. It stresses is
on the use of the tools of economics analysis
in clarifying problems, in organisaing and
evaluating information, and in computing
alternative course of action”
 Resources available to Allocation of Resources
Business
• Marketing
• Finance • Purchase
• Salary
• Technology

• Type of work
• Human resource • No of employees
• Hours of working
• Facilities to be provided

• Structure of building
• Infrastructure
• Type of machinery needed
• Amenities needed
 Decisions to be made in the Business

• Investment

• Plant location

• HOW MANY UNITS TO MANUFACTURE

• What should be price ?

• How to sell ?

• MAKE OR BUY DECISION

• Export or Domestic only ?

 Why Managerial economics Needs to be
studied?
• Multiple Goals of Business
– Increasing profit
– Increasing sales
– Increasing market share
– Brand building
• Dynamic and Uncertain market
 Scope of Managerial Economics
• The scope of Managerial economics refers to
areas in which the concepts of economics can
be implemented in better decision making in
the business.
• Widely there are two areas in which the
Managerial economics can be used i.e
– Macroeconomics
– Microeconomics
 Scope- Micro economic Decisions
• Demand Forecasting and Estimation.
• Cost and Production analysis
• Pricing decision
• Profit management
• Capital management
• Market analysis
Scope – Demand forecasting and analysis

• Demand Forecasting is determining the

demand in future.

• It is first step in decision making process.

• Useful in production planning and cost control

 PRODUCTION

CAPITAL

EMPLOYEES

DEMAND TECHNOLOGY
DEMAND

MARKETING

BASED ON CONCEPTS TRANSPORTATION AND LOGISTICS

OF MANAGERIAL
ECONOMICS
 COST AND PRICING

COST
RAW PRODUCTION MARKETING AND SALES COST PROFIT
MATERAL COST

PRICE
 Scope – Cost and Production analysis

DEMAND

INNOVATION

RAW MATERIAL

COST
COST TECHNOLOGY

COMPETITION

BASED ON CONCEPTS
OF MANAGERIAL
ECONOMICS
 Scope - Pricing decision
• Market Skimming pricing – LED tv, Curve TV
• Penetrating pricing – DTH
• Cost plus pricing – FMCG products
• Psychological pricing - Garments
• Predatory pricing - Jio
 Scope- Profit Planning
• Determine when profit is earned in terms of
Months, Years.
• Product Diversification decision
• Product line increase decision
• New product launch
• Determine Break even point
 Scope – Market analysis
• Different Types of Market
– Perfect Competition
– Monopoly market
– Oligopoly market
– Duopoly market
• Pricing, Profit planning, Capital , Demand etc
depends on the type of market
 Economics

Micro Macro

Mikros Makros

Small Large
 Micro- Economics
Study of Individual event
• Microeconomics is a branch of economics that
studies the behavior of individuals and firms in
making decisions regarding the allocation of
scarce resources and the interactions among
these individuals and firms
• Micro economics is the study of individual firm,
particular household, individual prices, wages,
income, individual incomes, individual
industries, particular commodities. Etc
 Macro- Economics
Study of whole economic unit
• Branch of economics which deals with
aggregate behavior of economy as a whole.
• It considers the production, consumption,
demand, income, etc of the country as a
whole.
 Micro Vs Macro Economics
• Income of a person • Income of all citizen
of country
• Problems of a • Problems of all
company/Business business in country
• Involves study of • Involves study of
individual income, National Income,
price of particular Total investment ,
commodity, total consumption
Individual industry etc
Micro Vs Macro Economics
 Scope of Micro Economics

WHAT
GOODS?

RESOURCES
WHO WILL
PRODUCE?

PRICE OF
GOODS?
PROFIT?
 IMPORTANCE OF MICRO ECONOMICS

• It explains price determination and allocation

of resources.
• It is helpful for individual business decision
making
• Guides production planning.
• Best utilization of resources or the art of
economizing
• Making government policies.
 LIMITATION OF MICRO ECONOMICS

• It considers marginal change.

• Unrealistic assumption of full employment.
• No considerations of other fields and impact.
• It can not solve the country's problem.
 Scope of Micro Economics

TOTAL
PRODUCTION

RESOURCES
COMPETITION
IN MARKET

GDP
INFLATION
NATIONAL
INCOME
 IMPORTANCE OF MICRO ECONOMICS

• Explains how entire economic system works

• Examines all the economic units and their
impact on another
• Helps policy makers, Governments in making
decision
• Helps businessmen in decision making
regarding diversification.
• Helps the Multinational Companies
 Limitation of Macro economics
• Ignores crucial individual behavior.
• Excessive generalization
• Cannot correctly aggregate all the economic
variables.
• National income, GDP etc are not exact
indicators (National income, GDP, Per capita
income)
Characteristics of Managerial economics
 Pragmatic in Nature
• The managerial economics deals with the
economic concepts which can be applied in
real business situations for making decisions.
• It does not just give the theoretical
knowledge.
 Normative science
• Managerial economics explains how the units
or variables should be rather than how they
are at the present
• Demand Forecasting
• Cost analysis
• Production analysis
 Significance
• Application of theoretical concepts to practical
business
• Establishing economic relationship
• Future planning
• Studying impact of external and internal
factors
• Framing business policies
Application of economic theories

Law of Demand Law of Supply

Demand Forecasting Break Even Point

 Economic relationship
Demand Production Cost

• Quantit
y of
producti
• Current on • Tot
demand • Quality cos
• Future of • Var
demand producti cos
• Cross on • Fixe
demand • Producti cos
on
schedul
e
 External Factors
Government

Competition

Demand

Supplier

Market

Technology
 INTERNAL FACTORS

CAPITAL

PLANT AND MACHINERY EMPLOYEES

PRODUCTION CULTURE ORGANISATION STRUCTURE
 Managerial Economist
INCREASE PROFIT

INTRODUCE NEW PRODUCT

WHAT TO DO
• Decided by Management
INCREASE MARKET SHARE

INCREASE PROFITINCREASE BRAND IMAGE

DECREASE COST HOW TO DO IT

• Decided by Employees or
company
DEMAND

ECONOMIC CONDITION IN FUTURE

• Managerial economist is a person in a
organization who assists and advises the
company in various decision making such as
Demand Forecasting, Pricing and Competitive
strategy, Cost Analysis, Government
regulation, Capital budgeting etc
 ROLE
• Advisor
• Mentor
• Analyst
Responsibility