1. Managerial Economics - I
F.Y.B.M.S. – SEM II

2. WHAT IS MANAGERIAL ECONOMICS?
The application of
economic analysis
to evaluate
Business decisions
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3. WHAT IS ECONOMICS?
Lionel Charles Robbins, Baron Robbins,
(22 November 1898 - 15 May 1984) a British
economist
In his Essay on the Nature and
Significance of Economic Science
Redefined the scope of economics to be "the
science which studies human behaviour as a
relationship between ends and scarce means which
have alternative uses" (Robbins, 1932).
Economics deals with Economic Problem concerned with unlimited wants and scarce resources
Economics gives choice and economizing as a solution to economic problem
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4. A business firm also faces Economic Problem
WHAT TO PRODUCE?
HOW TO PRODUCE ?
HOW MUCH TO PRODUCE ?
WHERE TO PRODUCE ?
FOR WHOM TO PRODUCE ?
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5. APPLICATION OF MANAGERIAL ECONOMICS
Dominic Salvatore
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6. PROCESS OF DECISION MAKING
ESTABLISH OBJECTIVE
DEFINE THE PROBLEM
IDENTIFY POSSIBLE SOLUTION
CONSIDER
CONSIDER LEGAL &
INPUT SELECT THE BEST POSSIBLE OTHER
CONSTRAIN SOLUTION CONSTRAINT
TS S
IMPLEMENT THE DECISION
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7. MODEL BUILDING
DEFINITION & ASSUMPTIONS
THEORETICAL ANALYSIS
PREDICTIONS
PREDICTIONS TESTED AGAINST
DATA
ACCEPT THE MODEL REJECT THE MODEL
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8. BRANCHES OF ECONOMICS
MICROECONOMICS MACROECONOMICS
Alfred Marshal J.M Keynes.
Slicing/individualistic approach Lumping/ aggregate approach
Law of Demand, value theories, Effective Demand, National Income,
Distribution theories Aggregate Demand
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9. MICROECONOMICS
MERITS DEMERITS
1) Formulates eco policies to promote 1) Assumes full employment in
welfare of masses free market economy but fails
2) Explains conditions of efficiency to explain involuntary
& causes of inefficiency & suggests unemployment &
measures underutilisation in depression
3) Explains function of free market 2) Cant explain trade cycles.
economy & explain how fully
centralised economy will fail 3) Apply knowledge of indus. To
economy. Wage cut in
4) Give importance to perfect
competition & explain problems of depression to increase
monopoly. emp.which is not feasible
5) Existance of externalities& suggest
govt. intervention
6) Regressive effect of indirect tax
7) Effect of devaluation & exchange rate
determination.
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10. ROLE OF MANAGERIAL ECONOMIST
According to KJW Alexandra & Alexandra G.Kemp
Study Business Environment
Sales Forecasting, Industrial Market Research,
Economic Analysis of Competitors, Pricing problem
Study Business Operations
of the firm & industry, Capital Projects,
Production Programme,
Organization of Economic Intelligence
Security & Investment analysis & forecasts,
Advice on trade & public relations, etc
Creation of Public Awareness
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11. OBJECTIVES OF FIRMS
OBJECTIVES OF FIRM
Profit Maximization
Sales Maximization
Utility Maximization
Staff Maximization
Growth Maximization
Satisfying Behavior
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12. PROFIT MAXIMIZATION
Walras, Jevons and Marshall
Profit = TR - TC
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13. SALES MAXIMIZATION
Prof. Baumol
UTILITY MAXIMISATION Y
a) Entrepreneur owner (Prof. Higgins)
b) Corporate Firm (Williamson)
P
R IC IC1
STAFF MAXIMIZATION O P
Berle & Means F
I p’
T
GROWH MAXIMIZATION
Prof. Robin Marris
SATISFYING BEHAVIOUR
Prof. Simon 0 Q Q1 x
SALES
Leisure activity
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Subordinate staff

14. CONSTRAINTS OF FIRMS
Resource Constraint
Legal Constraint
Moral Constraint
Contractual Constraint
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15. DEMAND
DESIRE + ABILITY + WILLINGNESS = DEMAND
DIRECT, DERIVED, EX-ANTE, EX-POST, JOINT, COMPOSITE, DEMAND FORPRODUCER’S GOODS
& CONSUMER’S GOODS, DURABLE GOODS, PERISHABLE GOODS, AUTONOMOUS DEMAND,
INDUSTRY’S DEMAND, COMPANY’S DEMAND
INDIVIDUAL DEMAND AND MARKET DEMAND
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16. DETERMINANTS OF INDIVIDUAL DEMAND
PRICE Px
INCOME Y
PRICES OF RELATED GOODS Pxy
TASTE T
DEMONSTRATION EFFECT D
FUTURE EXPECTATIONS E
ADVERTISEMENT A
UTILITY U
QUALITY Q
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17. DETERMINANTS OF MARKET DEMAND
POPULATION Pp
COMPOSITION OF
POPULATION Cp
ADVERTISING
SOCIAL PRACTICES Sp
CUSTOMS CU
Dx = f ( Px ,Y ,Pxy ,T ,D ,E ,U ,Q ,A ,Pp ,Cp ,Sp ,CU ,………..)
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18. THE LAW OF DEMAND
STATEMENT Dx = - f (Px)
DEMAND SCHEDULE
DEMAND CURVE
ASSUMPTIONS
EXCEPTIONS : GIFFEN GOODS, SNOB VALUE, EMERGENCIES, FASHION
VARIATION AND CHANGES IN DEMAND
DUE TO PRICE DUE TO OTHER FACTORS
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