Managerial Economics Intro

MANAGERIAL
ECONOMICS
An Introduction
JOSEPH FRANCIS S. PAMAONG,CPA,MBA, LLB

ECONOMICS DEFINITION
 Economics is “the study of the

behavior of human beings in
producing, distributing and
consuming material goods and
services in a world of scarce
resources.
Other definition Of Economics
 Economics can be called as social science dealing with
economics problem and man’s economic behavior.
 Individuals and others have to decide “how to allocate

scarce resources in the most effective ways.
 Economics provide optimum utilization of scarce

resources to achieve the desired result. It provides the
basis for decision making.
The word economics is derived from a
greek word “OIKONOMIA”
OIKO = Meaning HOUSEHOLD
NOMIA = Meaning NORMS, RULES

& REGULATIONS
Opportunity Cost
 Opportunity cost refers to

what you have to give up to
buy what you want in terms
of other goods or services.
Economic Problem
 Economic problem can be called as the problem
related to the unlimited wants with limited
resources having alternative applications
 Thus, every man faces the problem of
‘economizing his means’.
 How to make the maximum use of limited
resources?, is known as the problem of economy.
MANAGEMENT DEFINITION
Management is the discipline of

organizing and allocating a firm’s
scarce resources to achieve its
desired objectives.
MANAGEMENT FUNCTIONS
1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling
ME = Management + Economics
 Management deals with principles which helps in
decision making under uncertainty and improves
effectiveness of the organization.
 On the other hand economics provide a set of
preposition for optimum allocation of scarce
resources to achieve a desired result.
 ME deals with the integration of economic theory
with business practices for the purpose of
facilitating decision making and forward
planning by management.
What is Managerial Economics?
 Managerial economic is concerned with decision
making at the level of firm.
 It is viewed as a special branch of economics bridging
the gap between pure economic theory and
managerial practices.
 It is defined as application of economic theory and
methodology to decision making process by the
management of the business firms.
 The basic purpose of managerial economic is to show
how economic analysis can be used in formulating
business plans.
Diagrammatic Presentation
Economic Theory Business Management

and Methodology Decision Problems
Managerial Economics:
Application of Economics
to solving business problems
Optimal solution to
business problems
Decision Making
 Decision making is the central objective of
Managerial Economics
 Decision making may be defined as the process
of selecting the suitable action from among
several alternative courses of action
 The problem of decision making arises whenever
a number of alternatives are available.
Why Problems of Decision Making Arises?
 The problem of decision making arises due to
the scarcity of resources.
 We have unlimited wants and the means to
satisfy those wants are limited,
 With the satisfaction of one want, another arises,
and here arises the problem of decision making.
 While performing his function manager has to
take a lot of decisions in conformity with the
goal of the firm.
 Most of the decisions are taken under the
condition of uncertainty, and involves risks.
FACTORS OF PRODUCTION
 LAND
 LABOR
 CAPITAL
 ENTREPRENEURS
Decision Making Problems of Firm
 To identify the alternative courses of action of achieving

given objectives
 To select the course of action that achieves the objectives in
the economically most efficient way
 To implement the selected course of action in a right way to
achieve the business objectives.
 The prime function of management is Decision making and

forward planning.
 Forward planning goes hand in hand with decision making.
 Forward planning means establishing plans for the future.
Scope of ME
 Demand analysis,
 Forecasting,
 Cost analysis,
 Differential Analysis
 Capital Budgeting
 Inventory Management,
 Advertising,
 Pricing System,
 Resource allocation etc
Factors Influencing Managerial Decision Making
 Besides economic variables managerial decision
making is also influenced by other significant
variables, such as
› Human and Behavioral Considerations
› Technological Forces
MANAGERIAL DECISION
AREAS
 DETERMINATION OF INPUT-OUTPUT
 PRICING DECISION
 PROFIT RELATED DECISION
 ASSESSMENT OF CAPITAL/INVESTMENT
DECISION
 WHAT TO PRODUCE
 DETERMINATION OF PROFITABLE OUPUT
 SALES PROMOTION
Steps in Decision Making
 Establish objectives
 Specify the decision problem
 Identify the alternatives
 Evaluate alternatives
 Select the best alternatives
 Implement the decision
 Monitor the performance
OPTIMAL
SOLUTION OF
PROBLEMS
BRANCHES OF
MANAGERIAL ECONOMICS
 MICRO ECONOMICS
 MACRO ECONOMICS
THANK
YOU!!!!!

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MANAGERIAL

JOSEPH FRANCIS S. PAMAONG,CPA,MBA, LLB

 Economics is “the study of the

 Individuals and others have to decide “how to allocate

 Economics provide optimum utilization of scarce

OIKO = Meaning HOUSEHOLD

NOMIA = Meaning NORMS, RULES

 Opportunity cost refers to

Management is the discipline of

Economic Theory Business Management

 To identify the alternative courses of action of achieving

 The prime function of management is Decision making and

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