module 1 me

30
1 The Organisation that is successful is the one that can best deal with surprises. MANAGERIAL ECONOMICS An Analysis of Business Issues

Post on 13-Sep-2014

697 views

Category:

Documents


1 download

DESCRIPTION

 

TRANSCRIPT

Page 1: Module 1 me

1

The Organisation that is successful is the one that can best deal with surprises.

MANAGERIAL ECONOMICSAn Analysis of Business Issues

Page 2: Module 1 me
Page 3: Module 1 me

AimsThis course / subject reviews economic principles

in the context most relevant to business : – Production processes,

– demand patterns, cost structures,

– market conditions

– pricing policies, and

– the impact of all the above on business decisions

Cases and problems illustrate how economic concepts can be applied in business to the problems of the organisation.

Page 4: Module 1 me

This module deals with:

•Meaning and definition of Managerial Economics

• The nature, scope and significance of Managerial Economics

• The place of Managerial economics in the Economics discipline i:e Micro and Macro economics.

• How do managers make their decisions? Role of Managerial Economists

•Decision making process

Page 5: Module 1 me

6

What is Managerial Economics?Douglas - “Managerial economics is .. the application of economic principles and methodologies to the decision-making process within the firm or organization.”

Pappas & Hirschey - “Managerial economics applies economic theory and methods to business and administrative decision-making.”

Salvatore - “Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most effectively.”

Page 6: Module 1 me

7

What is Managerial Economics?

Milton H Spencer and Louis Siegleman

“It is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management.”

It is the study of allocation of resources available to a firm among its activities.

Page 7: Module 1 me

8

These Definitions Cover mainly two aspects of management i:e

• Forward planning

•Decision making.

Page 8: Module 1 me

Nature & characteristics of ME Micro in nature: Deals with a firm Application of Micro concepts:

Demand & Supply analysis, Cost Prod analysis Application of Macro Concepts:

National Income, Price levels, Investments Conceptual & Metrical Best decision tool for management Pragmatic & Realistic Normative/Prescriptive

9

Page 9: Module 1 me

Macroeconomics

Economics

Microeconomics

International Economics

Regional Economics

Money, finance, banking concerned with the nation

“Sector” economics

Managerial economics

Economic Development

Page 10: Module 1 me

11

The Use of Economic Models

Positive Economics:-

Derives useful theories with testable propositions about WHAT IS.

Normative Economics:-

Provides basis for value judgments on economic outcomes. WHAT SHOULD BE or WHAT OUGHT TO BE

Positive Economics:-

Derives useful theories with testable propositions about WHAT IS.

Normative Economics:-

Provides basis for value judgments on economic outcomes. WHAT SHOULD BE or WHAT OUGHT TO BE

Page 11: Module 1 me

12

What is the purpose of economic analysis?

Why do we want to apply economic analysis to business problems?

What is the purpose of economic analysis?

Why do we want to apply economic analysis to business problems?

For the academic economist: to understand, to make predictions about firm’s behavior The “positive” approach to theory: What is?

For the businessperson: “to assist decision-making”, to provide decision-rules which can be applied The “normative” approach to theory: What should be?

These purposes are different, they can lead to misunderstanding.

Page 12: Module 1 me

Scope of ME An analysis of scarcity of resources &

choice making poses 3 basic questions:

1. What to produce & how much to?

2. How to produce?

3. Whom to produce?

13

Page 13: Module 1 me

Scope of ME

Basic Questions Related concepts

What to produce & How much to produce?

Product decision: Demand & its elasticity, forecasting

How to produce? Input-Output decision: Production & Cost analysis, Capital Budgeting

Whom to produce? Segment decision: Consumer Behaviour- Pricing & Profit decision

14

Page 14: Module 1 me

Scope of METhe scope covers the following areas in

ME. Demand analysis Production & Cost analysis Pricing & Output Theory Profit management Investment &Capital Budgeting Market Competition

15

Page 15: Module 1 me

Importance / Significance of ME Knowledge of ME helps in making wise

choices. It is goal oriented Aims at maximum achievement of

objectives Helps in decision making. Helps in model building Provides concepts to solve business

problems16

Page 16: Module 1 me

Role of ME in Managerial Decision MakingRole of ME in Managerial Decision Making

Managerial decision problems

Product price and output

Make or buy

Production technique

Internet strategy

Advertising media and intensity

Investment and financing

Managerial decision problems

Product price and output

Make or buy

Production technique

Internet strategy

Advertising media and intensity

Investment and financing

Economic concepts

Theory of consumer behaviour

Theory of firm

Theory of market structures

Theory of pricing

Demand & Supply analysis

Economic concepts

Theory of consumer behaviour

Theory of firm

Theory of market structures

Theory of pricing

Demand & Supply analysis

Quantitative Decision making tools

Numerical analysis

Statistical analysis

Forecasting

Optimisation

Quantitative Decision making tools

Numerical analysis

Statistical analysis

Forecasting

Optimisation

Managerial Economics

Use of economics concepts and decision making tools to solve managerial decision problems

Managerial Economics

Use of economics concepts and decision making tools to solve managerial decision problems

Optimal solutions Optimal solutions

Page 17: Module 1 me

18

How Can Managerial Economics Assist Decision-Making?

How Can Managerial Economics Assist Decision-Making?

1. Adopt a general perspective, not a sample of one

2. Simple models provide stepping stone to more complexity and realism

3. Thinking logically

Page 18: Module 1 me

19

Why Managerial Economics?- The need for ME

A powerful “analytical engine”. A broader perspective on the firm.

• what is a firm?• what are the firm’s overall objectives?• what pressures drive the firm towards profit and

away from profit The basis for some of the more rigorous

analysis of issues in Marketing and Strategic Management.

Page 19: Module 1 me

Role of managerial Economist

Making decisions & processing information are the two tasks of managers.

It involve two kinds of decisions. They are

1. Specific decisions

2. General decisions

22

Page 20: Module 1 me

Specific decisions Production scheduling Demand forecasting Market research & Marketing decisions Economic analysis of the industry Investment appraisal Cost decisions Inventory decisions Pricing and related decisions Analysis & forecasting environmental factors

23

Page 21: Module 1 me

General Decisions Learn about the general eco conditions

of the economy & advise mgt Understand consumer behaviour and

advise mgt Input cost analysis Find other opportunities for business

expansion Update mgt on govt’s economic policies

24

Page 22: Module 1 me

Responsibilities of Managerial Economist Set objectives in line with organization's Make accurate forecasting Maximizing firm’s profits Use of specialized skills and tech to solve business

problems Bring synthesis in policies pertaining to prod,

investment, stock, price, cost etc Study & interpret economic data Ready to undertake special assignments Alert mgt timely in all respects Working for the whole business concern

25

Page 23: Module 1 me

Difference b/n ME & Traditional EconomicsTraditional eco. ME

Deals with study of concepts, principles & theory aspects of the economics

Includes both micro & macro concepts of eco.

Both positive & Normative Considers only eco factors

affecting a problem Doesn't depend upon

process of decision making

Deals with application of economic principles to business problems

Includes only micro concepts of economics

It is a normative science Considers both eco & Non-

eco factors affecting problem

Very much depends on decision making

Page 24: Module 1 me

Difference b/n Micro & Macro economicsMicro economics Macro economics

Deals with individual firm. Studies behaviour of a firm

or small groups of firms. Gives micro-scopic view of

the economy. Individualistic approach. Concerned with problems of

micro variables like indv dd, ss .

Deals with indv income & output.

deals with problems of pricing, income distribution of a firm.

Deals with economy as whole.

Studies behaviour of large aggregates in the economy.

Gives a complete view about the economy.

Aggregate methodological appr.

Concerned with problems of macro variables like national income, price, investments

Deals with national income & output.

deals with problems of pricing, income of the nation

Page 25: Module 1 me

Relation to other branches of knowledge

ME has a close linkage with other disciplines & field of study. They are:

1.Economics

2.Theory of Decision Sciences

3.Operation research

4.Statistics

5.Accounting

6.Mathematics

Page 26: Module 1 me

ME – Science or ArtsME is both science and an Art.As Science: Science is the systematic study of body

of knowledge. As science ME has the systematic approach to deal with any problem concerning the organization and approaches step by step to resolve it.

As Art: Deals with process of getting things done. The process of decision making varies from person to person and it is art to handle the crisis. Economist has to advise & assist the firm in taking right decisions Hence, he should be an expert in the field.

Page 27: Module 1 me

Difference b/n ME & Traditional EconomicsTraditional economics Managerial economics

Deals with study of concepts, principles & theory aspects of the economics

Includes both micro & macro concepts of eco.

Both positive & Normative Considers only eco factors

affecting a problem Doesn't depend upon

process of decision making

Deals with application of economic principles to business problems

Includes only micro concepts of economics

It is a normative science Considers both eco & Non-

eco factors affecting problem

Very much depends on decision making

Page 28: Module 1 me

Difference b/n Micro & Macro economicsMicro economics Macro economics

Deals with individual firm. Studies behaviour of a firm or

small groups of such firms. Gives micro-scopic view of the

economy. Individualistic approach. Concerned with problems of micro

variables like indv dd, ss . Deals with indv income & output. Primarily deals with problems of

pricing, income distribution of a firm.

Deals with economy as whole.Studies behaviour of large

aggregates in the economy.Gives a complete view about the

economy.Aggregate methodological appr.Concerned with problems of

macro variables like national income, price levels, etc.

Deals with national income & output.

Primarily deals with problems of pricing, income distribution of the nation

Page 29: Module 1 me

Relation to other branches of knowledge

ME has a close linkage with other disciplines & field of study. They are:

1.Economics

2.Theory of Decision Sciences

3.Operation research

4.Statistics

5.Accounting

6.Mathematics

Page 30: Module 1 me

ME – Science or ArtsME is both science and an Art.

As Science: Science is the systematic study of body of knowledge. As science ME has the systematic approach to deal with any problem concerning the organization and approaches step by step to resolve it.

As Art: Deals with process of getting things done. The process of decision making varies from person to person and it is art to handle the crisis. Economist has to advise & assist the firm in taking right decisions Hence, he should be an expert in the field.