Copyright ©2004 by South-Western, a division of Thomson Learning. Copyright ©2004 by South-Western, a division of Thomson Learning. This will be damaging in the long-run. But it is very difficult to apply it. . The managerial economics helps the managers to come forward with such policies and planning which can help the organization to attain its desired goal-- the maximization of profit. Copyright ©2004 by South-Western, a division of Thomson Learning.
In managerial economics we are concerned with the short-run and long-run effects of decisions on revenues as well as on costs. Economic theories and techniques of economic analysis are applied to analyze business problems, evaluate business options and opportunities with a view to arriving at an appropriate business decision. Determination of the scope of the subject includes: i Definition of the subject, ii Subject matter of business economics, iii Is business economics a positive or a normative science? Suppose the only production constraint in a multi-product firm is machine-hours available. Overtaking decision of the motorist involves construction of a very complex set of equations. The market price of a bond reflects not only its face value at maturity and interest payments, but also the current discount rate. But in order to produce this output, some extra cost will have to be incurred because the increased production will consume raw- materials, fuel and other inputs.
But theoretical models of economics are to be applied in business areas. Firm B Advertise Don't Advertise 4, 3 5, 1 2, 5 6, 2 Copyright ©2004 by South-Western, a division of Thomson Learning. Management would like to avoid this situation. The problem here is one of comparing the cost of the first process with -that of the alternative. Firm A Advertise Don't Advertise Prepared by Robert F. Suppose, the production manager has to choose between an output of 2,000 units and one of 3,000 units. Definitions There is a dispute on the question whether managerial economics is an art or science.
Slide 21 Monopolistic Competition Short-Run Equilibrium Prepared by Robert F. Copyright ©2004 by South-Western, a division of Thomson Learning. Copyright ©2004 by South-Western, a division of Thomson Learning. Students can Download the Study materials in the Pdf format Which can be Helps in their Academic preparation. Copyright ©2004 by South-Western, a division of Thomson Learning. In public sectors, the goals may be slightly different from reducing the cost, best use of resources, proper allocation of resources, business and agricultural policies, etc.
Copyright ©2004 by South-Western, a division of Thomson Learning. In a nutshell, we may define managerial economics as an application of economics analytical tools to make the best choices for the attainment of desired goals and future policies, under the condition of uncertainty. The Incremental Concept : It is easy to describe incremental reasoning. In reality, however, some explicit expenses may not involve sacrifices of alternatives. Strategy Invest Do Not Invest Prepared by Robert F. This could be used to produce the order. Under the circumstance, the decision of overtaking in a two- lane highway seems to be next to impossible.
Before publishing your Articles on this site, please read the following pages: 1. Again, the optimal strategy is to advertise. Identification of the problems and the solving of the problems are the two crucial elements of decision-making of a business firm. Copyright ©2004 by South-Western, a division of Thomson Learning. Otherwise, the payoff is 1. It means a lot to them too! Managerial economics is largely an applied branch of microeconomics. This distinction is not based on any calendar period, say, a month, a quarter or a year.
Demand analysis and forecasting, profit management, and capital management are also considered under the scope of managerial economics. Macro-economics deals with external issues : üThe type of economic system in the country üGeneral trends in N. In this case we may expect the curve for the value of the marginal product to be horizontal up to full capacity, and then to drop to zero. Since its contribution is the highest, it deserves the top priority in allocation of capacity. This requires an estimate of the added revenue and added cost of the product. Slide 19 Social Cost of Monopoly Prepared by Robert F.
Slide 19 Advertising Example 2 What is the optimal strategy for Firm A if Firm B chooses not to advertise? So, in the absence of any other consideration, he would accept contract A, the most profitable one. The micro-economic theory of the demand for labour asserts that the profit: maximising entrepreneur will continue to employ labour so long as the resulting addition to his costs is covered by the addition to his receipts from the sale of his products. True enough, the gradual accumulation of orders may require an addition to capacity, with added depreciation and added top-level supervision. Copyright ©2004 by South-Western, a division of Thomson Learning. The contribution concept is often used in product- mix decisions, also in pricing decisions. Copyright ©2004 by South-Western, a division of Thomson Learning. Slide 28 Managerial Economics in a Global Economy, 5th Edition by Dominick Salvatore Chapter 12 Regulation and Antitrust: The Role of Government in the Economy Prepared by Robert F.
We often find the application of the principle in the business world. Copyright ©2004 by South-Western, a division of Thomson Learning. Firm A Advertise Don't Advertise Prepared by Robert F. This is an unproved and probably a false belief. Slide 19 Prepared by Robert F.
In some cases, the new product may be a complement for, rather than a substitute, of the old product. But suppose there is idle capacity in the short run. Since business economics is thought of as applied microeconomics, the scope of business economics includes: i. Hague, we can argue that there are links between managerial economics and management science. If a decision involves no sacrifices, it is cost free. Although incremental cost is far below full cost, management has found that the long-run repercussions of going below full cost more than offset any short- run gain.