Economics

Contd. Economics is essentially the study of logic, tools and techniques of making optimum use of the available resources to achieve given ends. Managerial economics is the integration of economics theory with business practice for the purpose of facilitating decision making and forward planning by management. “It is the application of economics theory and methodology to business administration practice” Many decision have to be taken under condition of uncertainty since involve risk. Uncertainty and risk arise due to market forces “ demand and supply” changing business environment, ciovt policy etc. M.E is concerned with decision making of economics nature i.e identification of economics choices and allocation of scarce resources

Chief characteristics (1) M.E is micro economics in character and concentrates on the firm (2) It takes help from macro economics to understand and adjust to the environment in which firm operates. (3) M.E is normative i.e. “what ought to be” rather than what is,was, or will be. (4) It is both conceptual and metrical i.e. conceptual framework to understand and analyses and quantitative techniques to measure the impact of elifferent factors and policies (5) “based mainly on the theory of the firm” (6) It helps in making wise choice. Manages face the problems of scarcities, it is study of allocation of resources and mark achievement

Scope of M.E M.E is concerned with (1)Objectives of business firm (2) Demand analysis and demand forecasting (3) Production and cost (4) Competition (5) Pricing and output (6) Profit (7) Investment and capital budgeting (8) Product policy, sales promotion and market stratergy.

Tools of M.E (1) M.E and operational resources -: both are concerned with best way of achieving firms objectives. O.R is used to solve decision problems, modal building (2) Mathematics – provides us with a set of tools which help in the derivation and exposition of economic analysis i.e demand price, cost, product capital etc.- geometry algebra, calculus (3) Statistics- to deal with uncertainty conditions of firm- probability

Fundamental Concepts (1) Incremental reasoning (2) Opportunity cost. (3) Contribution (4) Time perspective (5) Time value of money – Discounting principle (6) Risk and uncertainty (1)I.R -: The impact of decision alterative (2)-incremental cost (3)-Incremental revenue. Incremental cost- is defined as the charge in level of output I.R – is the charge in total revenue resulting from charge in total level; of output, price etc. Theorem-I – A course of action should be pursued up to the point where incremental benefits are equal to incremental costs. Theorem-2 – Different courses of action should be pursued up to the point where all the courses provide equal marginal benefit per unit of cost The marginal profit at any output level is the total profit at that output level minus the total profit at the preceding output level 2- States that an input must be allocated between various uses that the value added by the last unit of input is the same in all its uses.