Managerial Economics_1

Managerial Economics

The term managerial economics includes 2 terms:
(a) Management & (b) Economics


(a) Management:
Management is a process of designing and maintaining an environment in which individuals work together in groups efficiently accomplishing selected aims and objectives.

Managers carryout various managerial functions:
(1) Planning
(2) Organising
(3) Staffing
(4) Leading and
(5) Controlling

Management applies to any kind of organisation. Management is all about maximising results with the utilisation of minimum resources. The job of a business manager is not only to make profits but also to increase the value of their common stock.

Management like any other practice medicine, engineering, accountancy, music composition is an art. Managers work better by using organised knowledge about management. Organised knowledge underlying the practice may be referred to as "Science". Science and art are not mutually exclusive, they are complementary. As the science improves so shall art as has happened in the physical and biological environment.

(b) Economics:
Economics is defined by many economics.
Adam Smith was a classical economist. According to him, economics is a wealth oriented science.
Marshal Law was the neo-economical economist. According to him, economics is a welfare oriented science.
Mrs. Robbins is a modern economists. According to her, economics is a scarcity oriented science. She arrived with four features:
(i) Human wants are unlimited.
(ii) Human wants are adjusted with priority.
(iii) Means (resources) are scarce.
(iv) Resources have alternative uses.


Managerial Economics:
Managerial economics involves the economics as the basic discipline. Managerial economics studies the human behaviour in ordinary business. Managerial economics has vital role in decision making. Managerial economics is assumed as the concept of microeconomics.
Managerial economics helps the manager to perform managerial functions. It studies the allocation of resources available in the organisation. It is concerned with the part of economising, i.e. by making the best selection of alternatives. Managerial economics is defined by many economists.
M C Nair and Meriam has defined as -
"Managerial economics consists of the use of economics modes through the analysis of business situation."

Spencer & Siegelman has also defined the managerial economics as -
"Managerial economics is an integration of economic theory with business practice for the purpose of facilitating decision making & production planning by management".



Features of Managerial Economics:

(i) Managerial economics involves the application of economics theory because managerial economics involves the economics as the basic concept. It also studies the human behaviour in the particular organisation and managerial economics is the part of microeconomics. Managerial economics also deals with the concept of economising. Managerial economics also deals with the optimum utilisation of resources which means minimisation of cost with the maximisation of revenue.

(ii) Managerial economics is a science as well as art. Managers work better by using organised knowledge about management. Organised knowledge underlying the practice may be referred to as "Science". Science and art are not mutually exclusive, they are complementary. As the science improves so shall art as has happened in the physical and biological environment.

(iii) Managerial economics is concerned with the concept of microeconomics because it studies the particular organisation, internal and external factors of the organisation. Managerial economics also studies the employees behaviour in organisation. Ultimately microeconomics is the part of macroeconomics.

(iv) Managerial economics has 2 model approaches:
(a) Descriptive and (b) Prescriptive
(v) Managerial economics also deals with the real business & real situation.
(vi) Managerial economics helps the firm to improve efficiency through the way of minimising the cost with the maximisation of revenue.



Duties of Managerial economists:
(i) Demand Estimation & Forecasting.
(ii) Preparation of business, purchase, sales, forecast.
(iii) Analysis of market survey to determine the nature of competition.
(iv) Analysis of the issues and problems of the concerned industry.
(v) Provide an assistanceship to the manager for business planning.
(vi) Advicing on pricing, investment and capital budgeting.
(vii) Evaluation of capital budget.
(viii) Giving instructions on research activity.


Microeconomics & Macroeconomics:
The word 'micro' came from the greek word 'mikros' which means small. The word 'macro' came from the greek word 'makros' which means large. Microeconomics is concerned with the analysis behaviour of individual (specific or particular). Microeconomics observe the economic variable through the microscope.

Microeconomics deals with the 3 theories:
(a) Pricing: includes the theory of demand and theory of supply.
(b) Distribution: includes the theory of the factor of production (land, labour, capital & enterprise) and
(c) Welfare: explains the allocation of resources.

Macroeconomics deals with the industry. It studies the aggregate behaviour of the whole economy. The national income, full employment, aggregate demand & aggregate supply are examples of macroeconomics.

In microeconomics, one assumption is made and other things remain constant/equal.


Advantages of Microeconomics:
(i) Microeconomics is useful to the firm to make the prediction.
(ii) The tools of Microeconomics are useful in preparing the expansion.
(iii) Microeconomics provides an understanding of the working of market mechanism in free economy.
(iv) Price productivity theory is helpful to the manager to estimate the demand and to estimate the supply.
(v) Distribution theory helps the manager to determine the cost of production.


Limitations of Microeconomics:
(i) Other things remain unchanged/constant.
(ii) Full employment: In Microeconomics this is an assumption that each and every economy has the full employment.



Advantages of Macroeconomics:
(i) Macroeconomics explains the working of the economic system as the whole.
(ii) Macroeconomics is helpful to make an international comparision.
(iii) Macroeconomics is very useful to the economic planner who prepares the economic plans for the country.
(iv) Macroeconomics explains the working of the economic system as the whole.


Limitations of Macroeconomics:
(i) Macroeconomics has the tendency to excessive generalisation.
(ii) Macroeconomics ignores the individual behaviour.
(iii) Macroeconomic predictions are not fully reliable because it is based on the incomplete and inaccurate data.