 According to Spencer and Siegelman “Managerial

Economics is the integration of economic theory

with business practice for the purpose of
facilitating decision-making and forward
planning by management.”
 Brigham and Pappas believe that managerial
economics is “the application of economic
theory and methodology to business
administration practise.”
 Hague, on the other hand, views managerial
economics as “a fundamental academic subject
which seeks to understand and to analyse the
problems of business decision-making”.
 ME is concerned with decision-making of
economic nature. This implies that managerial
economics deals with identification of economic
choices and allocation of scarce resources.
 ME is goal-oriented and prescriptive .It deals
with how decisions should be made by managers
to achieve the organisational goals.
 ME is pragmatic. It is concerned with those
analytical tools which are useful in improving
decision-making.
 It is both conceptual and metrical. An intelligent
application of quantitative techniques to
business.
 It provides a link between traditional economics
and the decision sciences for managerial
decision-making
(1) Helpful in organising
(2) Helpful in Planning
(3) Helpful in decision-making
(4) Helpful in Co-ordination
(5) Helpful in formulating business policies
(6) Helpful in cost control
(7) Helpful in Demand Forecasting
(8) Minimising Uncertainities
(9) Helpful in forward planning
(10) Helpful in understanding external environment
1. Demand Analysis and forecasting,
2. Cost Analysis
3. Production and Supply Analysis
4. Pricing decisions, Policies and Practices
5. Profit Management
6. Capital Management
 Demand analysis helps identify the various
factors influencing the demand for a firm’s
product
 It is essential for business planning and occupies
a strategic place in Managerial Economics
 It mainly consists of discovering the forces
determining sales and their measurement.
 A study of economic costs, combined with the
data drawn from the firm’s accounting records,
can yield significant cost estimates that are
useful for management decisions
 The factors causing variations in costs must be
recognised
 An element of cost uncertainity exists because
all the factors determinig costs are not always
known as controllable.
 Discovering economic costs and being able to
measure them are necessary steps for more
effective profit planning,cost control and often
for sound pricing practises.
 Production analysis frequently proceeds in
physical terms while cost analysis proceeds in
monetary terms
 Production analysis mainly deals with different
production functions and their managerial uses.
 Supply analysis deals with various aspects of
supply of a commodity.
 Certain important aspects of supply are: Supply
schedule, curves and function ,Law of supply and
its limitations,
 Pricing is a very important area of Managerial
Economics
 Price is the genesis of the revenue of a firm and
as such the success of a business firm largely
depends on the correctness of the price
decisions taken by it.
 The important aspects dealt with under this area
are : Price Determination in various Market
Forms, Pricing Methods, Differential Pricing ,
and Price Forecasting.
 Business firms are generally organisedfor the
purpose of making profits and, in the long run,
profits provide the chief measure of success.
 If knowledge about the future were perfect,
profit analysis would have been very easy task.
 Profit planning and measurement constitute the
difficult area are: Nature and measurement of
profit,Profit Policies and Techniques of profit
planning like Break-Even Analysis
 The most complex and troublesome for the
business manager are likely to those relating to
the firm’s capital investments.
 Capital management implies planning and
control of capital expenditure
 The main topics dealt with are : Cost of Capital,
Rate of Return and Selection of projects.
 Business Economics and Micro- Economic theory
 Business Economics and Macro-Economic theory
 Business Economics and Mathematics
 Business Economics and Accounting
 Business Economics and Management
 Business Economics and Psychology
1) The scientific Method or Experimental Method-
The blend of Inductive and Deductive method
2) The Statistical Method –is a device by which
the quantitative data are collected and
scientifically analyzed in order to give us a
more clear picture of happenings.
3) The Method of Simulation- This method has
acquired prominence with the oncoming of
electronic computers.
4) The Description method- It is used by
Managerial Economist to analyse the impact of
original structure on the working of business
enterprises
5) Reference to facts and figures of the firm
provides complete information about the
working of the firm. Systematically an approach
can be set up to compile the data from the
various departments of the firm.
6) Case studies undertaken would provide an
invigorating method in the learning process in
the science of Managerial Economics. Case
studies bring out the complexity of the
environment in which the managers have to take
economic decisions
1) Wants- Want refers to lack of satisfaction, a state
of discomfort which every individual desires to
eliminate.
2) Utility- Utility is the capacity of a good to satisfy a
human want. Total utility and Marginal Utility
3) Demand- Demand is the desire backed by
purchasing power.
4) Supply- Supply of any commodity refers to various
amounts of the commodity which the sellers are
willing to sell at different possible prices at any
given time.
5) Production- Production refers to creation of
something tangible which can be used to satisfy
human want.
6) Distribution- The term distribution refers to the
sharing of the wealth produced in the community
among the various factors of production
7) Consumption- Consumption implies destruction or
use of utilities for satisfying human wants
8) Cost- Production involves cost. The aggregate of the
expenditure incurred by the producer in the
process of production is called as cost of
production.
9) Price- The value of anything expressed in terms of
money is the ‘price’ of that thing
10) Competition-
11) Monopoly- Monopoly is that market category in
which there is single seller.
12)Profit- In economics we refer to profits as a reward
which goes to the organization(entrepreneur) as a
factor of production for its participation in the
process of production.
13) Optimisation- Making the best possible use
of available resources to obtain the
maximum possible desired quality of
output.
14) Average and Marginal – Marginal Cost is the
additional cost for producing additional unit
of output.
15) Elasticity- Elasticity means the degree of
responsiveness of change in one variable
brought about by change in some other
variable.
16) Micro and Macro Economics -