M ANAGERIAL ECONOMI X

CONTENTS… DEFINITION T.E.T V/S M.E.T WAT’S NEW IN MET PROBLEMS IN M.E.T MET & STATISTICS MET & O.R MET & MANAGEMENT ACCOUNTING

Definition Managerial Economics, is normative economics dealing with decision making problems - how to take business decisions in order to attain given set of objectives. It advices what ought to be done and how it should be done. Normative economics – Is an approach to economic theory. It is concerned with 2 questions: What should be a firms aims & policies? How to achieve set objectives, i.e., how to decide on achieving its aims & policies?

Traditional V/s. Managerial economic theory M.E.T is advisory in nature, in decision making, and has a practical aspect. T.E.T is related to description & analysis of an economic problem. In simple terms MET is Normative and TET is Positive economic approach.

what’s new in M.e.t ??? Importance of Non-economic consideration: Managerial decisions are not merely influenced by economic considerations. They also depend on human behavioral factors and environmental forces. Technological Factors also considered: T.E.T assumes a given technology and proceeds to analyze factors leading to equilibrium. MET examines very closely various emerging technological alternatives.

Contd… Profit Maximization- Not the Only Goal: TET gives importance to Profit Maximization. MET replaced this assumption with the following: 1. Making reasonable profit than making profit to the nth degree. 2. Legal, moral, public and community obligations are equally important. 3. Employee welfare should be ensured even at the expense of company profits.

Problems in M.e.t M.E has 2 major functions: Decision Making Forward Planning Both these are performed under uncertainty. There are 4 groups of problems in both decision-making and forward planning

1. Resource Allocation : Scare resources are to be used with utmost efficiency to get optimal results. 2. Inventory and Queuing Problems : Inventory problems involve decision about holding of optimal levels of stocks of raw materials & finished goods over a period. These decision depends on demand and supply. Queuing problem involve decisions about installation of additional machines or hiring extra labor, to balance for business lost due to its absence. 3. Pricing Problems : Fixing prices for the products of the firm is an important decision-making problem. It involves decisions regarding various methods of pricing to be adopted-whether price should be cost determined or demand determined or both. 4. Investment Problems: Forward planning involves this problem.

4.Investment Problems: Forward planning involves this problem. Allocation of scarce resources. Investing in new plants, how to invest, fund raising, expansion programs, sources of funds etc are some of the problems.

M.E.T and statistics… Managerial problems employ the use of statistical data and mathematical formulae for analysis. Owing to uncertainty statistical tolls such as probability, L.P, forecasting etc used.

M.e.t V/s. O.r O.R is a specialized approach to investigate particular problems of a firm. Both strive to arrive at optimal results. ME although similar in function is used by firms having limited resources. O.R is time consuming and expensive. ME is a academic process, help arrive at solutions for problems that are economic in nature. Quick solutions without additional expense.

M.E & Management accounting Closely linked. Managers concerned with decision making and forward planning are informed of the financial condition of the firm through M.A, and take right decisions. Financial statements of a firm provides ample information which may be decisive in making decisions related to size of firm its output etc..

Conclusion…. Managerial Economics is an indispensable part of economic theory related to problem solving at the level of a firm and is employed in the day to day running of the business enterprise.

REFERENCE BUSINESS ECONOMICS- VG MANGKAR

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