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    EHU-501 : Engineering & Managerial

    Economics

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    Syllabus:

    Unit-I

    Introduction : Meaning, Nature and Scope of

    Economics, Meaning of Science, Engineering and

    Technology. Managerial Economics and its scope in

    engineering perspective.

    Unit-II

    Basic Concepts

    Demand Analysis, Law of Demand, Determinates

    of Demand, Elasticity of Demand-Price, Income

    and cross Elasticity. Uses of concept of elasticity of

    demand in managerial decision. 2

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    Unit-III

    Demand forecasting

    Meaning, significance and methods of

    demand forecasting, production function,

    Laws of returns to scale & Law of Diminishing

    returns scale. An overview of Short and Long

    run cost curves fixed cost, variable cost,

    average cost, marginal cost, Opportunity cost.

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    Unit-IV

    Market Structure

    Perfect Competition, Imperfect competition Monopolistic,Oligopoly, duopoly sorbent features of price determination and

    various market conditions.

    Unit-V

    National Income, Inflation and Business Cycles

    Concept of N.I. and Measurement. Meaning of Inflation, Typecauses & prevention methods, Phases of business cycle.

    Reference Books

    Managerial Economics : M. L. Jhingan

    Managerial Economics for Engineering : Prof. D.N. Kakkar

    Managerial Economics : D.N. Dwivedi

    Managerial Economics : Maheshwari.

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    Introduction

    The word Economics is derived fromthe Greek word OKIOS NEMEINmeaning household management

    Man is a bundle of desires. Goods

    and services satisfy these wants. Butalmost all the goods are scares.

    To produce goods factors of

    production are needed and these arealso scarce.

    07/12/2014 . 5

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    The Study of Economics

    Economicsis the study of howindividuals and societies choose to use

    the scarce resources that nature and

    previous generations have provided. It is the study of economic problems.

    Wants are motive for economic

    activity. Wants leads to efforts andwhich lead to satisfaction

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    Economic Definitions

    Adam Smith gave the WealthDefinition

    Alfred Marshall gave the WelfareDefinition

    Lionel Ribbons gave the ScarcityDefinition Paul Samuelson gave the GrowthDefinition

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    Why Engineers need to study Managerial economics :

    Natural resources (from which we must build things) are becoming

    more scarce and more expensive. We are much more aware ofnegative side-effects of engineering innovations (such as air pollutionfrom automobiles) than ever before.

    For these reasons, engineers are tasked more and more to place theirproject ideas within the larger framework of the environment within

    a specific planet, country, or region.

    Engineers must ask themselves if a particular project will offer somenet benefit to the people who will be affected by the project, afterconsidering its inherent benefits, plus any negative side-effects

    (externalities), plus the cost of consuming natural resources, both inthe price that must be paid for them and the realization that oncethey are used for that project, they will no longer be available for anyother project(s).

    Simply put, engineers must decide if the benefits of a project exceed

    its costs or not.

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    Who is a Manager ?

    A manager is a simple lay man person who managesthings around.

    A manager has to manage :

    Ideas ( i.e., objectives, plans and policies )

    Things (i.e., capital, machinery, materials and otherphysical resources) ;

    People (i.e., human resources) .

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    Questions that managers must answer :

    Objectives of a firm? Economic Objectives (profit maximisation, sales

    maximisation, Techniques of production, market share, etc.) Non Economic Objectives (a good place for the employees

    to work, provide good products and better services to thecustomers, act as a good citizen .

    What to produce? (demand analysis and forecasting)

    Make or buy?

    How to produce? (production technology).

    Cost of producing commodity?

    Price and quantity of output to be produced? Profit?

    Investment?

    Product policy, sales promotion and market strategy?

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    DEFINITIONS OF MANAGERIAL ECONOMICS

    McGuigan and Moyer: Managerial economics is the

    application of economic theory and methodology todecision-making problems faced by both public and

    private institutions.

    McNair and Meriam: Managerial economics consists

    of the use of economic modes of thought to analyse

    business situations.

    Spencer and Siegelman: Managerial economics is the

    integration of economic theory with business practice

    for the purpose of facilitating decision-making and

    forward planning by management.

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    The Method of Economics

    Positive economicsstudies economic behavior

    without making judgments. It describes what exists

    and how it works.

    Normative economics, also called policy economics,analyzes outcomes of economic behavior, evaluates

    them as good or bad, and may prescribe courses of

    action.

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    CHARACTERISTICS OF MANAGERIAL ECONOMICS

    1. Microeconomic in nature: It studies the problems andprinciples of an individual business firm or an individual

    industry.2. Normative economics: It is concerned with varied

    corrective measures that a management undertakes undervarious circumstances.

    3. Future planning, policy-making, decision-making and

    optimal utilisation of available resources, come under thebanner of managerial economics.

    4. Pragmatic:

    5. Uses theory of firm: Managerial economics employseconomic concepts and principles, which are known as the

    theory of Firm or 'Economics of the Firm'.6. Takes the help of macroeconomics:

    7. Aims at helping the management: Managerial economicsaims at supporting the management in taking correctivedecisions and charting plans and policies for future.

    8. A scientific art:Science is a system of rules and principles .

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    The scope of Managerial Economics

    Economics is grouped under two broad categories:

    Microeconomicsis the branch of economics thatexamines the functioning of individual industries and thebehavior of individual decision-making unitsthat is,business firms and households.

    Macroeconomicsis the branch of economics thatexamines the economic behavior of aggregatesincome, output, employment, and so onon a nationalscale. Ex: Total production, total consumption, totalsavings and total investment.

    The areas of business issues to which economictheories can be directly applied may be divided into twocategories :

    Operational or internal issues. Environmental or external issues.

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    The following are the fields covered byMacroeconomics:1. Theory of National Income, Output and Employment

    with its two constituents, namely, the theory ofconsumption function, the theory of investmentfunction .

    2. Theory of general Price level with its constituents ofthe theories of inflation, deflation .

    3. Theory of Economic Growth dealing with the long-run

    growth of income, output and employment.

    The following are the fields covered byMicroeconomics:

    1. Theory of Product pricing (Theory of Demand & Theoryof production and Cost)

    2. Theory of Factor pricing. (Theory of Distribution-Wages, Rent, Interest, profits)

    3. Theory of Economic Welfare.

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    SCOPE OF MANAGERIAL ECONOMICS:

    1. Theory of demand Demand Analysis

    Demand Theory (Consumer Behaviour) 2. Theory of production

    Variable factor

    Fixed Factor

    3. Theory of exchange or price theory

    4. Theory of profit Demand of the product

    Prices of the factors of production

    Nature and degree of competition in the market

    Price behaviour under changing conditions 5. Theory of capital and investment

    Selection of a investment project

    Efficient allocation of capital

    Assessment of the efficiency of capital

    Minimising the possibility of under capitalisation orovercapitalisation.

    E i l i

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    Environmental issues

    The type of economic system of the country

    Social factors like value system of the society Political system of the country Business cycles Monetary and fiscal policy of the country

    General trends in : economy concerning the production, employment,

    income, prices, saving and investment etc. The working of financial institutions in the country

    Foreign trade of the country

    General attitude and significance of socialorganisations like trade unions, producers unionsand consumers cooperative societies etc.

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    Assisting the business planning process of the

    firm

    Discovering new possible fields of business

    endeavor and its cost-benefit analysis

    Advising on prices, investment and capital

    budgeting policies

    Evaluation of capital budgeting etc.22

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    Role of Science ,Engineering and Technology in

    Economic Development

    Science is the systemized body of knowledge (containsconcepts, theories and principles which are universal

    and true) pertaining to a particular field of enquiry.

    Science passes through 3 stages of growth before

    coming to the level of production which results ineconomic development. These stages are:

    Stage 1: Formulation of the scientific principles

    Stage 2: Application of the scientific principles( known

    as innovation) Stage 3: Development of the innovation to the point of

    commercial exploitation e. g. (development of a Solar

    Cooker)

    (Cont.)

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    Science as the prime driver for INVENTIONS :

    An invention is a scientific discovery

    Process invention

    Product invention

    Innovation is the practical application of an

    invention. Innovation causes changes in thefollowing areas:

    Increasing productivity

    Increasing sell

    Changing the combination of factors(input)

    (Land, labour , Capital)

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    T h l

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    Technology

    Technology refers to the body of knowledge ,skillsand procedures for preparing , using and doing usefulthings.

    Technological development is a continuous process.

    Types of technology:

    1. Labour intensive technology

    2. Capital intensive technology

    3. Neutral Technology

    4. Intermediate Technology

    Technology leads to:

    1. Greater output

    2. Shorter working hours

    3. Efficient use of Raw material

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    Managerial Economist and Business Decisions

    Demand Decisions /Forecasting (Consumer

    behavior, Preferences, price situation, changes inemployment and BOP)

    Price-Output Decisions (it decide Quantity toproduce, Cost, revenue and profit)

    Production Decisions (Technology , plant size,product mix and capital mix etc.)

    Investment Decisions (Production capacity

    expansion , new product, new plant, Rate ofinvestment , )

    Advertising Decisions

    Profit Decisions

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    Application of Economic Concepts,

    Tools and Techniques: In applying theeconomic principle to solve the practical business

    problem ,Economist has to use some basic economic

    tools discussed below :

    Scarcity Principle

    Opportunity Cost principle Incremental Principle or marginalism

    Principle of time perspective

    Discounting principle

    Equi Marginal principle