Note for Managerial Economics - ME By JNTU Heroes

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www.jntuworldupdates.org Managerial Economics and Financial Analysis Common for all B.Tech Students UNIT – I _______________________________________________________ INTRODUCTION TO MANAGERIAL ECONOMICS ction INTRODUCTION TO MANAGERIAL ECONOMICS The word economics is derived from a Greek term “OCIO NOMOS” which means house management it explains how different individuals behave while managing their economics activities. Economics teaches us how a person tries to satisfy his unlimited desires with the limited resources at his disposal. In other word it teaches us how to use the available scares resources to meet our unlimited desires. Hear the question of choice comes in the need for choice arises in the context of “Scarcity”. MANAGERAL ECONOMICS: Economics is concerned with determining the means of achieving given objectives in the most efficient manner. While managerial economics is the application of economic theory and private institutions. It is an extraction from economic theory, particularly micro economics those concepts and techniques which enable the decision Makers to efficiently allocate the resources of the firm. If also enables the decision makers to understand the economic environment and the effect of changes in this on resources allocation within the organization Definition: K . Arjun Goud Assistant Professor www.specworld.in Page 1 1 www.smartzworld.com

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www.jntuworldupdates.org Managerial Economics and Financial Analysis Common for all B.Tech Students Economics is deals with money or money oriented activities. According to M N Nair’s and Meram “Managerial economics consist of the use of economic modes of thought to analyses business situations” According to Haynes “Managerial economics is economics applied in decision making”. Nature of managerial economics The following points specify the nature of managerial economics.  Managerial economics is confined only to a part of business management: Managerial economics is confined only to a part of business management but it is not directly concerned with the managerial problems involving control, implementation, and other management strategies.  Managerial economics mainly relies on the sound framework of traditional economics and decision science: Managerial economics mainly relies on the sound framework of traditional economics and decision science in analyzing the problems in a business. It mainly relies on the application of economic principles and methodologies for business decision making.  Managerial economics is mainly microeconomics in nature: Micro economics is that branch of economics which deals with the individual units or sections of an economy. As managerial economics is mainly concerned with analyzing and finding optimal solution to the problems of decision-making in a business firm, it is essentially micro economic in nature.  Managerial economic is pragmatic: It is a practical subject. It prevents the abstract issues of economic theory and incorporates complications that are not covered by the economic theory in order to analyze the situation in which manager take decisions  Managerial economic falls into normative economics: Economics can be classified into two broad categories namely positive and normative. Positive economics describes ‘what is’ i.e., observed economic phenomenon. The statement “Poverty in India is very high” is an example of positive economics. Normative economics describes ‘what ought to be’ or ‘what should be’ differentiates the ideal from the actual. The statement “people who earns more income should pay more income tax than people who earn low income” is an example of normative economics. K . Arjun Goud Assistant Professor www.specworld.in Page 2 2 www.smartzworld.com

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www.jntuworldupdates.org Managerial Economics and Financial Analysis Common for all B.Tech Students  Managerial economics is goal oriented and problem solving in nature: It uses the economics theory and decision science for solving business oriented problems.  Managerial economics integrated theory into practice: It converts the theoretical framework of economics into real business practice. Scope of managerial economics The following business areas can be considered as the scope of managerial economics:  Objective of a business firm or organization: Managerial economics provide a sound frame work by facilitating a business firm to frame its objectives both in the short-run and long-run.  Resource allocation: Managerial economics provide the methods of effective resource allocation. It mainly aims at achieving high output through low and proper allocation of resource.  Demand analysis and Demand forecasting: It suggests the methodologies for analyzing the demand of a product. The demand forecasting K . Arjun Goud Assistant Professor www.specworld.in Page 3 3 www.smartzworld.com

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www.jntuworldupdates.org Managerial Economics and Financial Analysis Common for all B.Tech Students techniques it provides demand for a product which proven to be quite efficient for meeting the competition.  Competitive analysis: The managerial economics provides competitive techniques for facilitating a firm to withstand or to face in a competitive situation.  Strategic planning: Managerial economics guides a business manager in making strategic decisions.  Production management: Managerial economics plays a vital role in production management. Its effective tools helps to plan the business schedule, regulate the production process and effectively place the output in the market  Cost analysis: Managerial economics provides various cost concepts and cost curves that facilitates in determining cost-output relationship both in short-run and long-run.  Pricing strategies: Managerial economics provides certain pricing strategies that are used in analyzing the price of a product and in determining or setting the price of a product.  Investment and capital budgeting decisions: The concept of opportunity cost provided by managerial economics facilitates in making appropriate investment decisions and choose the best alternative that fits the organizational requirements.  Marketing strategies: Managerial economics provide marketing strategies like 1) Product policy 2) Sales promotions 3) Segmentation, targeting and positioning.  Economics of sales: Managerial economics in the long-run helps a firm to enjoy economies and diseconomies of scale.  Profit management: Managerial economics mainly concentrates on the primary goal of a firm i.e., profit maximization. It deals with the activities like profit estimation and profit planning  Input and Output analysis: The concept of production function managerial economics depicts the input and output relationship.  Inventory control: Effective inventory control techniques of managerial economics readily meet the organizational requirements K . Arjun Goud Assistant Professor www.specworld.in Page 4 4 www.smartzworld.com