Amity School of Business

Amity School of Business

BBA-SEMESTER :I MICRO ECONOMICS FOR BUSINESS Mrs. ROLI RAGHUVANSHI

Structure
Theory of Consumer Behavior Marginal utility theory, Indifference curve theory Theory of Production & Cost

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-Demand

analysis and estimation

Micro Economics for Business

Competition, market structures and business decisions

Introduction. The nature of managerial economic decision making

Alternate Theories of Firm

ECONOMIC THEORY Amity School of Business

Is divided in two parts:
1.- Microeconomics, which deals with economic
behavior in the marketplace where buyers and sellers interact. 2.- Macroeconomics, which deals with the behavior of economic aggregates such as the gross national product, national income, national employment, national consumption.

What is Managerial Economics? Amity School of Business

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.
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Managerial economics deals with Amity School of Business

How decisions should be made by managers to achieve the firms goals - in particular, how to maximize profit.

(Also government agencies and nonprofit institutions benefit from knowledge of economics, i.e. efficient recourse allocation is important for them too...)

Questions that managers must answer: Amity School of Business

Should our firm be in this business? If so, what price and output levels achieve our goals? How can we maintain a competitive advantage over our competitors?
Cost-leader? Product Differentiation? Market Niche? Outsourcing, alliances, mergers, acquisitions? International Dimensions?
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Questions that managers must answer: Amity School of Business

What are the economic conditions in a particular market?
Market Structure? Supply and Demand Conditions? Technology? Government Regulations? Future Conditions? Macroeconomic Factors?

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Decision Sciences Tools and Techniques of Analysis

Numerical Analysis Statistical Estimation Forecasting Game Theory Optimization
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Managerial Decision Problems: Amity School of Business

Managerial decision problems arise in any organization (i.e. non-profit organization such as a hospital or a university or government agency), when they seek to achieve some goal or objective subject to limitations on the availability of essential inputs and in the face of legal constraints.

Economic Decisions Amity School of Business

CONSTRAINTS GOALS & OBJECTIVES

INFORMATION
Constraints -- limitations of time, energy, money, productive capacity, regulatory climate, etc. Information -- forecasting, relationships, expectations, possible retaliation by rivals, etc.
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Case of Hospital: A hospital may seek to treat as patients as possible at an adequate medical standard with its limited physical resources (i.e. physicians, technicians, nurses, equipment, beds etc.) and budget.

Case of University:The goal of a state university may provide an adequate education to as student as possible subject to the physical and financial constraints it faces. Case of government agency Similarly, a government agency may investigate to provide a particular service to as many people as possible at the lowest feasible cost.
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Amity School of Business Managerial Decision Problems

Economic theory Microeconomics Macroeconomics

Decision Sciences Mathematical Economics Econometrics

MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS
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A Decision-Making Model Amity School of Business

Objectives

Define the problem

Alternative Solutions Organizational and input constraints

Social constraints

Evaluation

Implement and monitor the decision

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Interaction of MEB with Other Disciplines of Management

Marketing
Demand Price Elasticity

Finance
Capital Budgeting Break-Even Analysis Opportunity Cost Economic Value Added Incremental Cost Analysis
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Strategy
Types of Competition Structure-Conduct-Performance Analysis

Management Science
Linear Programming Regression Analysis Forecasting

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SCOPE OF MEBAmity School of Business

Economics has two major branchesMicro Economics Macro Economics Both Micro & Macro economics are applied to business analysis and decision making directly or indirectly.

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The areas of business issues to which economic theories can be directly applied may be broadly divided into two categories A- Operational or Internal issues B- Environmental or external issues

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Micro Economics applied to Operational Issues

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Operational problems are of internal nature. They include all those problems which arise within the business organisation and fall within the purview and control of the management. Some of the basic internal issues are1- choice of business and the nature of product,i.e, what to produce 2- choice of size of firm,i.e, how much to produce 3- choice of technology.i.e, choosing the factor combination 4- choice of price 5- how to promote sales 6- how to face price competition 7- how to decide on new investments 8- how to manage profit and capital 9- how to manage inventory,i.e, stock of both finished goods and raw materials
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The microeconomic theories which deal with most Amity School of Business of these questions are-

1- Theory of demand 2- Theory of production 3- Analysis of market structure and pricing theory 4- Profit analysis and profit management 5- Theory of capital and investment decisions

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Macro Economics applied to business environment Amity School of Business

Environmental issues pertain to the general business environment in which a business operates. They are related to the over-all economic, social and political atmosphere of the country. The factors which constitute economic environment of a country include the following factors 1- the type of economic system of the country 2- general trends in production,employment,income,prices saving and investment, etc., 3- trends in the working of financial institutions 4- trends in foreign trade
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5- trends in labour and capital markets

6- governments economic policies

7- social organisations like- trade unions, consumers cooperatives, producers union

8- the degree of openness in the economy and the influence of mncs on the domestic markets 9- states attitude towards business
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Basic Assumptions
1) Ceteris Paribus 2)Rationality Types of Economic Analysis 1) Micro and Macro 2) Positive and Normative 3) Short run and Long Run 4) Partial and General Equilibrium

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