Premium Essay

Managerial Economic

In: Other Topics

Submitted By nosi
Words 35678
Pages 143
Unit 1

Concepts of Managerial Economics
Learning Outcome

After going through this unit, you will be able to: • • • • Explain succinctly the meaning and definition of managerial economics Elucidate on the characteristics and scope of managerial economics Describe the techniques of managerial economics Explain the application of managerial economics in various aspects of decision making • Explicate the application of managerial economics in marginal analysis and optimisation

Time Required to Complete the unit
1. 2. 1st Reading: It will need 3 Hrs for reading a unit 2nd Reading with understanding: It will need 4 Hrs for reading and understanding a unit 3. 4.
5.

Self Assessment: It will need 3 Hrs for reading and understanding a unit Assignment: It will need 2 Hrs for completing an assignment Revision and Further Reading: It is a continuous process

Content Map
1.1 1.2 Introduction Concept of Managerial Economics 1.2.1 Meaning of Managerial Economics 1.2.2 Definitions of Managerial Economics Managerial Economics 1

1.2.3 Characteristics of Managerial Economics 1.2.4 Scope of Managerial Economics 1.2.5 Why Managers Need to Know Economics? 1.3 1.4 Techniques of Managerial Economics Managerial Economics - Its application in Marginal Analysis and Optimisation 1.4.1 1.4.2 1.5 1.6 1.7 Application of Managerial Economics Tools of Decision Science and Managerial Economics

Summary Self Assessment Test Further Reading

2

Managerial Economics

1.1 Introduction
Managerial decisions are an important cog in the working wheel of an organisation. The success or failure of a business is contingent upon the decisions taken by managers. Increasing complexity in the business world has spewed forth greater challenges for managers. Today, no business decision is bereft of influences from areas other than the economy. Decisions pertinent to production and...

Similar Documents

Premium Essay

Managerial Economics

...MANAGERIAL ECONOMICS ASSIGNMENT 1A & 1B RUCHIKA SHINGNE 201600225 SEC C 1a. Scope of Economic Analysis Introduction Economics is the science of making decisions in the presence of scarce resources. Economics is the study of the production and consumption of goods and the transfer of wealth to produce and obtain those goods. Economics explains how people interact within markets to get what they want or accomplish certain goals. There are mainly two key ideas in economics; that goods are scares and society must use its resources efficiently. Managerial economics is the study of how to direct scares resources in the way that most efficiently achieves a managerial goal. Managerial economics is the application of microeconomic theory and methodology to decisionmaking problems faced by private, public and non-profit institutions. It assists decision-makers i.e. managers in efficiently allocating scarce resources, planning corporate strategy, and executing effective tactics. Managerial economics to a certain degree is prescriptive in nature as it suggests course of action to a managerial problem. Problems can be related to various departments in a firm like production, accounts, sales, etc. Managerial economics or economics is categorized in two types; microeconomics and macroeconomics. Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited......

Words: 2163 - Pages: 9

Premium Essay

Managerial Economics

...Assignment no: 509 Answer Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve it aims or objectives most efficiently. Importance of managerial economics 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 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 Managerial enables the use of economic logic and principles to aid management decision-making. Managers are decision-makers and economics should be relevant to give practical guidance in arriving at right decisions. Every manager has to take important decisions about using his limited resources like land, capital, labour, finance etc. to get the maximum returns, therefore, managerial economics, concentrates on those practical aspects of micro-economics which help in decision-making. Managerial economics focuses on the most profitable use of scarce resources rather than on the achievement of equilibrium......

Words: 3719 - Pages: 15

Premium Essay

Managerial Economics

...NATIONAL OPEN UNIVERSITY OF NIGERIA COURSE CODE : BHM 303 COURSE TITLE: MANAGERIAL ECONOMICS 1 MANAGERIAL ECONOMICS (THE COURSE GUIDE) THE NEED Managerial Economics as a course required for effective resource management was put in place due to the following developments in the global business environment: (a) Growing complexity of business decision-making processes. (b) Increasing need for the use of economic logic, concept, theories, and tools of economic analysis in the process of decision-making. (c) Rapid increases in the demand for professionally trained managerial manpower. These developments have made it necessary that every manager aspiring for good leadership and achievement of organizational objectives be equipped with relevant economic principles and applications. Unfortunately, a gap has been observed in this respect among today’s managers. It is therefore the aim of this course to bridge such gap. THE COURSE OBJECTIVES On completion of the requirements of this course, students and managers alike will be expected to: 1. Understand the relative importance of Managerial Economics; 2. Know how the application of the principles of managerial economics can aid in the achievement of business objectives; 3. Understand the modern managerial decision rules and optimization techniques; 4. Be equipped with tools necessary in the analysis of consumer behaviours, as well as in forecasting product demand; 5. Be equipped with the tools for analyzing production and......

Words: 40300 - Pages: 162

Premium Essay

Managerial Economics

....what is meant by managerial economics? Managerial economics is a study of application of managerial skills in economics,more over it help to find problems or obstacles in the business and provide solution for those problems.problems may be relating to costs, prices, forecasting the future market ,human resource management, profits etc. Managerial economics is a study of application of managerial skills in economics, more over it help to find problems or obstacles in the business and provide solution for those problems. Managerial economics (also called business economics), is a branch of economics that applies microeconomic analysis to specific business decisions. As such, it bridges economic theory and economics in practice. it's fields and it's Components? Fields are: Risk analysis, production analysis , price analysis and capital budgeted Components: Consumers * Microeconomics studies the actions of two major components: individual consumers and businesses. As a part of the economy, consumers sell their labor to business firms, in exchange for which they receive wages. Consumers then spend their earnings on goods and services they purchase from businesses, and pay taxes to the government for the services governments provide. Consumer spending is an important component of the economy, because consumers' activity represents such a large part of a nation's gross domestic product (GDP), the sum total of national economic activity. In the U.S., consumer spending......

Words: 499 - Pages: 2

Premium Essay

Managerial Economics

...Managerial Economics is a branch of economics. With the help of this branch, we can apply Economics in decision making. Managerial Economics bridges the gap between economic principles/ theory and managerial practice. To take a specific decision, this branch applies micro economic analysis. We can apply the principles of Economics in taking decisions related to some problems like scale of operation, quantum of resources to be employed, marketing etc. Because of the scarcity of the resources it is not possible to have whatever we want. To get the better value from limited resources it is essential to evaluate the difference between the total cost and the total benefits of any activity. To choose the better option one of the tools provided by the managerial economics is marginal analysis. By weighing the marginal benefits against the marginal costs one can take the best decision. Marginal Costs- Marginal cost is the change in total cost when one more unit is produced. Marginal cost occurs when an activity increases by one unit. When the firm increases its production the total cost always increases even though the marginal costs may not rise. Rise in marginal costs is shown in the below chart. Following table shows the total cost and the marginal cost by making pizza: Quantity Total Cost Marginal Cost 0 0 -- 1 5 5 2 10 5 3 17 7 4 25 8 5 34 9 6 44 10 7 58 14 8 73 15 9 90 17 10 110 20 (MARGINAL ANALYSIS) Marginal Benefits- Marginal benefit is change in total......

Words: 576 - Pages: 3

Premium Essay

Managerial Economics

...Managerial Economics – Individual Assignment 1 ------------------------------------------------- Please answer all the following questions: All questions carry equal marks 1) - Managerial economics is the science of directing scarce resources to manage cost effectively. Explain how managerial economics concepts can help understanding strategic decisions. (Max 1000 words) Microeconomics is the study that helps make decisions of allocating resources, services and prices, while macroeconomics studies the field of behavioural economy in a wider range, such as entire industries or economies. Managerial economics helps improve the analytical skills through rational thinking, as well as solving problems; it uses both the economic theories of microeconomics as well as econometrics in order to make rational managerial decisions. It is those theoretical concepts that help understand and make strategic decisions, but in order to be able to apply them, it is crucial to collect data carefully and organize it well, to establish a strong basis for decision-making. On the other hand, it is also of high importance that any business sets their goals before analysing the data collected, as those goals will be at the heart of any formulation of managerial objectives. As a matter of fact, managerial economics aims for the best decision-making context, meaning to achieve those objectives in the most efficient way, using the minimum available resources and creating no......

Words: 1705 - Pages: 7

Free Essay

Managerial Economics

...Managerial Economics Definition: Managerial economics is the science of directing scarce resources to manage cost effectively. It consists of three branches: competitive markets, market power, and imperfect markets. Competitive markets (a) Markets. i. a market consists of buyers and sellers that communicate with one another for voluntary exchange. It is not limited by physical structure. ii. in markets for consumer products, the buyers are households and sellers are businesses. iii. in markets for industrial products, both buyers and sellers are businesses. iv. in markets for human resources, buyers are businesses and sellers are households. v. Note: an industry is made up of businesses engaged in the production or delivery of the same or similar items. (b) Competitive markets. i. markets with many buyers and many sellers, where buyers provide the demand and sellers provide the supply, e.g., the silver market. ii. the demand-supply model - basic starting point of managerial economics, the model describes the systematic effect of changes in prices and other economic variables on buyers and sellers, and the interaction of these choices. (c) Non-competitive markets – a market in which market power exists. Market power (a) Market power - the ability of a buyer or seller to influence market conditions. A seller with market power will have the freedom to choose suppliers, set prices and influence demand. (b) Businesses with market......

Words: 319 - Pages: 2

Premium Essay

Managerial Economics

...Managerial Economics-MT445 Unit 3 Project Chapter 5 – question 2, page 117 2. (Elasticity and Total Revenue) Explain the relationship between the price elasticity of demand and total revenue. If demand is price inelastic, an increase in price will lead to increase in revenue because the percentage increase in price will cause a smaller decrease in quantity demand. If demand is elastic, an increase in price will lead to a decrease in revenue because the percentage increase in price will cause more reduction in quantity demanded. Chapter 5 – question 5, page 118 5. (Determinants of Price Elasticity) Would the price elasticity of demand for electricity be more elastic over a shorter or a longer period of time? It's inelastic in the short run and inelastic in the long run, but I guess it would more elastic in the long run than in the short run when people can find substitutes. Chapter 7 – question 2, page 166 2. (Explicit and Implicit Costs) Determine whether each of the following is an explicit cost or an implicit cost: a. Payments for labor purchased in the labor market – Explicit b. A firm’s use of a warehouse that it owns and could rent to another firm - Implicit c. Rent paid for the use of a warehouse not owned by the firm - Explicit d. The wages that owners could earn if they did not work for themselves - Implicit Chapter 7 – question 14, page 167 14. (Long-Run Average Cost Curve) Explain the shape of the long-run average cost curve. What does......

Words: 263 - Pages: 2

Premium Essay

Managerial Economics

...Managerial Economics and Globalization 1. Some games of strategy are cooperative. One example is deciding which side of the road to drive on. It doesn’t matter which side it is as long as everyone chooses the same side. Otherwise, everyone may get hurt. a. Does either player have a dominant strategy? Explain. There is no dominant strategy from left or right. Both right and left could result in a higher payoff. b. Is there Nash equilibrium in this game? Explain. A Nash equilibrium exists when “players are in equilibrium if a change in strategies by any one of them would lead that player to earn less than if she remained with her current strategy (Shor, 2006).” Since neither player has a dominant strategy, this game does not have a Nash equilibrium. c. Why this game is called a cooperative game? Both players have to cooperate with one another and choose the same side. It is in the best interest of both left and right to choose the same side. If not, they will have a big negative payoff. 2. a. What is the firm’s Total Revenue? MC equals MR to maximize the profits. The monopoly output level is at E. From the demand curve, the price should be at A. Total revenue equals Price times Quantity. This is represented at area of AJEO\ b. What is the Total Cost? The average output E on the graph is H. The total Cost equals ATC times Q. This equals area BHEO. c. What is the firm’s Total Profits? Total profits equal total revenue minus total cost. This...

Words: 324 - Pages: 2

Premium Essay

Managerial Economics

...Assignment 1: Demand Estimation By Michael A. Stevenson Managerial Economics 1/23/2014 The market of leading brand of low calorie microwavable food estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of April: Q = - 5200 – 42P + 20 PX + 5.2 I + 0.2 A + 0.25 M | | (2.002) | (17.5) | (6.2) | (2.5) | (0.09) | (0.21) | | | R2 = 0.55 | N= 26 | F = 4.88 | | * Q = quantity sold by month * P= price of the product=500 * Px=price of a leading competitor ‘s product=600 * I =per capita income of the standard metropolitan statistical area where the supermarkets are located =5500 * A=monthly advertizing expenditures= 10000 * M=number of microwave ovens sold in the SMSA in which the super markets is located =5000 a-Compute the elasticity for each of the variables for each variable ∆Q/∆variable = variable coefficient so PED = variable coefficient x variable initial value/Q PEDP = -42X500/Q Q= -5200-42x500+20x600+5.2x5500+0.2x10000+0.25x5000 = = -5200-21000+12000+28600 +2000+1250=17650 PEDP = -42X500/17650 = -1.19 PEDPX = 20X600/17650 = 0.68 PEDI= 5.2X5500/17650 = 1.62 PEDA= 0.2X10000/17650 = .11 PEDM= 0.25X5000/17650 = .07 Price is the assignment of value, or the amount the consumer must exchange to receive the offering. Pricing strategy is one of the most difficult areas of marketing decision making. It deals with......

Words: 870 - Pages: 4

Premium Essay

Managerial Economics

...MANAGERIAL ECONOMICS Suggested Practice Problems • All multiple choice problems in Chapters 21, 22, and 23 • Individual problems: 21.2, 21.3, 22.5, 23.3, 23.5  • Answers (Click Here) Complete Final Exam. The exam must be completed by Sunday at 11:59 p.m. ET. Exam covers Weeks 5, 6, 7, and 8. Chapter 21 – Getting Employees to Work in the Firm’s Best Interests Chapter 22 – Getting Divisions to Work in the Firm’s Best Interests Chapter 23 – Managing Vertical Relationships Managerial Economics, 3rd Edition Luke M. Froeb; Brian T. McCann; Michael R. Ward; Mikhael Shor http://en.wikipedia.org/wiki/Managerial_economics / http://www.coursehero.com/sitemap/schools/501-FIT/courses/1467122-ECONBUS-5421/ http://www.coursehero.com/sitemap/states/Massachusetts/ Managerial economics is the "application of the economic concepts and economic analysis to the problems of formulating rational managerial decisions".[1]It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units. As such, it bridges economic theory and economics in practice.[2] It draws heavily from quantitative techniques such as regression analysis, correlation and calculus.[3] If there is a unifying theme that runs through most of managerial economics, it is the attempt to optimize business decisions given the firm's objectives and given constraints imposed......

Words: 83490 - Pages: 334

Premium Essay

Managerial Economics

...Managerial Economics Chapters 1-6, 8 1) Goal Alignment at a Small Manufacturing Company The owners of a small manufacturing company have hired a manager to run the company with the expectation that he will buy the company after five years. Compensation of the new vice president is a flat salary plus 75% of first $150,000 of profit, and then 10% of profit over $150,000. Purchase price for the company is set as 4.5 times earnings (profit), computed as average annual profitability over the next five years. Does this contract align the incentives of the new vice president with the goals of the owners? A) No, these incentives are not aligned. If the VP keeps $112,500 of the first $150,000k then he will be motivated up to that point. Only 10% of the profit over $150,000 will be retained by him which is a very real decreasing marginal benefit. In addition, setting the purchase price based on profit certainly incentivizes him to keep the total profit down during that time. See below: So in this scenario he would earn $75k less over the 5 years, but would be able to buy the company for ½ the price. I have not factored in the flat salary as it isn’t really relevant except to add to the discrepancy even more. 2) Production Opportunity Cost A can manufacturing company produces and sells three different types of cans: versions X, Y, and Z. A high-level, simplified profit/loss statement for the company is provided here. Corporate overhead (rent, general and......

Words: 1268 - Pages: 6

Premium Essay

Managerial Economics

...Managerial Economics MBA First Year Paper No. 2 School of Distance Education Bharathiar University, Coimbatore - 641 046 Author: Atmanand Copyright © 2007, Bharathiar University All Rights Reserved Produced and Printed by EXCEL BOOKS PRIVATE LIMITED A-45, Naraina, Phase-I, New Delhi-110028 for SCHOOL OF DISTANCE EDUCATION Bharathiar University Coimbatore-641046 CONTENTS Page No. UNIT-I ......

Words: 36898 - Pages: 148

Premium Essay

Managerial Economics

...SEMESTER 2014 MANAGERIAL ECONOMICS – BMME5103 ASSIGNMENT (60%) Name: NGUYỄN THỊ MINH HIỀN Class: MBAOUM0514-K14A Question 1 a. What is (are) the main difference(s) between a monopolistically competitive market and a monopoly market? Their characteristics are different: |Monopolistically competitive market |Monopoly market | |Large number of small firms: |A single firm selling all output in a market: | |It is relatively small compared to the overall size of the market. |It is a market controlled by a single seller. | |All firms are relatively competitive with very little market control |Monopoly becomes a price maker, rather than a price taker. | |over price or quantity. | | |Similar but not identical products sold by the firms |A unique product | |Each firm in this market sells similar product and the product is | | |different from others. |To be the only seller of a product, there are no close substitutes. | |Product differentiation is responsible for giving......

Words: 2901 - Pages: 12

Premium Essay

Managerial Economics

...MZUMBE UNIVERSITY DAR ES SALAAM CAMPUS FACULTY OF BUSINESS STUDIES PROGRAM : MBA - CORPORATE MANAGEMENT 2013/14 EVENING SESSION: (MBA II) – 16 HRS TASK : ASSIGNMENT SUBJECT : MANAGERIAL ECONOMICS (ECO 5011) LECTURER : Dr. P. NGOWI GROUP PARTICIPANTS NAME OF PARTICIPANT REGISTRATION NU * Adrian Mchunguzi 2210500…./T13 QUESTION: Find an organization of your interest and (advised to pick an organization of one of the group members) and explain in detail how one of the aspects of managerial economics are applied in practice.) * INTRODUCTION The discipline of managerial economics deals with aspects of economics and tools of analysis, which are employed by business enterprises for decision-making. One of economic managerial aspects is production function and cost function. Choosing Tanzania Portland Cement Company Limited (TPCC) as a firm of case study, we are interested to examine application of the production function and cost function in the TPCC decision making. It should be noted that, TPCC’s objective is manufacturing, selling and distribution of high quality construction cement in Tanzania. According to TPCC Annual report (2012), indicated that TPCC remains the market leader in the cement industry in Tanzania. The company manufactures two brands of cement, strictly conforming to the latest standards......

Words: 3050 - Pages: 13