NATURE, SCOPE AND PRACTICE

OF MANAGERIAL ECONOMICS
 MANAGERIAL ECONOMICS
• A branch of economics which studies the application
of the theories, tools, and findings of economic
analysis to managerial decision making in all types of
organizations, including government agencies,
educational centers, not-for-profit foundations and
business enterprises.
• A study of the science of resource allocation at the
level of the organizational unit is a must for all
managers of human institutions if society is to achieve
numerous objectives in a world of limited resources .
 CORPORATE PLANNING/BUSINESS POLICY
FORMULATION
• IS THE FORMULATION OF OF COPORATE OBJECTIVES
AND DEVISING STRATEGIES TO ACHIEVE THEM.
• A FORMAL, SYSTEMATIC MANAGERIAL PROCESS,
ORGANIZED BY RESPONSIBILITY, TIME, AND
INFORMATION, TO ENSURE THAT OPERATIONAL
PLANNING,PROJECT PLANNING, AND STRATEGIC
PLANNING ARE CARRIED REGULARLY TO ENABLE
TOP MANAGEMENT TO DIRECT AND CONTROL THE
FUTURE OF THE ENTERPRISE
THREE PHASES OF CORPORATE PLANNING
Phase I - OPERATIONAL PLANNING- FORWARD PLANNING OF EXISTING
OPERATIONS IN EXISTING MARKETS WITH EXISTING CUSTOMERS AND
FACILITIES
Phase II - PROJECT PLANNING – SOMETIMES CALLED AS DEVELOPMENTAL
PLANNING OR CAPITAL EXPENDITURE PLANNING
– IT IS THE GENERATION AND APPRAISAL OF THE COMMITMENT TO AND THE
WORKINGS OUT OF THE DETAILED EXCUTION OF AN ACTION OUTSIDE THE
SCOPE OF PRESENT OPERATIONS.
Phase III - STRATEGIC PLANNING THE DETERMINATION OF FUTURE
POSTURE OF THE BUSINESS WITH SPECIAL REFERENCE TO ITS PRODUCT-
MARKET POSTURE, ITS PROFITABILITY, ITS SIZE, ITS RATE OF OF
INNOVATION AND ITS STAKEHOLDERS RELATIONSHIP.
– IT INVOLVES FORMULATION OF COPORATE OBJECTIVES AND THE THE MEANS TO
ACHIEE ITS OBJECTIVES.
BASIC ACTIVITIES OF STRATEGIC PLANNING

• OBJECTIVES FORMULATION
• ENVIRONMENTAL APPRAISAL
• CORPORATE APPRAISAL
• STRATEGIC FORMULATION
 CONCEPT OF ECONOMICS IN DECISION
MAKING
• DECISION MAKING
– CHOOSING THE RIGHT OPTION
– IT IS THE MOST IMPORTANT FUNCTION OF BUSINESS MANAGERS
– IT IS THE CENTRAL OBJECTIVE OF MANAGERIAL ECONOMICS
– IT IS THE PROCESS OF OF SELECTING THE SUITABLE ACTION
FROM AMONG THE DIFFERENT ALTERNATIVE COURSES OF
ACTION
– THE CONCEPT OF DECISION MAKING ARISES OUT OF SCARCITY
OF RESOURCES
– MANAGERS HAVE TO DO A OF DECISION IN CONFORMITY WITH
THE GOAL OF THE FIRM
– MOST DECISIONS ARE TAKEN UNDER THE CONDITION OF
UNCERTAINTY, AND INVOLVE RISKS
MANAGERIAL ECONOMICS
- IS CONCERNED WITH DECISION MAKING AT THE FIRM LEVEL. DECISION MAKING PROBLEMS FACED BY BUSINESS FIRMS:
-TO Identify the alternative courses of action of achieving given objectives
-TO select the best alternative that achieves the business objectives in the most economical and efficient way
- TO implement the selected course of action in a right way to achieve the business objectives
 TOOLS AND TECHNIQUES IN DECISION
MAKING
STEPS IN DECISION MAKING
 Establish objectives
 Specify the decision problem
 Identify the alternatives
 Evaluate alternatives
 Select the best alternative
 Implement the decision
 Monitor performance
 Basic economic tools in managerial
economics for decision making
• Opportunity cost principle
• Incremental principle
 Marginal Analysis
• Principle of Time Perspective
 Long Run Market Period
 Short run Market Period
• Principle of Aggregate or Total principle
 Total Productivity
 Total Revenue
• Equimarginal Principle