ECONOMICS IS SCIENCE OF CHOICE.  ECONOMIC AGENTS HAS TO MAKE THE CHOICE : (A) FIRM - PROFIT MAXIMISATION (B) HOUSEHOLD - SATISFACTION MAXIMISATION PROBLEM OF CHOICE OR DECISION MAKING ARISES DUE TO SCARCITY

SCARCITY  OUR WANTS ARE UNLIMITED  RESOURCES ARE LIMITED CHOICE  HUMAN WANTS ARE UNLIMITED BUT THESE WANTS DIFFER IN INTENSITY.  RESOURCES ARE LIMITED, BUT LIMITED RESOURCES ARE CAPABLE OF BEING BUT ALTERNATIVE USES. ECONOMIC UNITS HOUSEHOLD FIRM GOVT.

HOUSEHOLD : LAND -RENT LABOUR -WAGES CAPITAL -INTEREST ENTERPRENEURSHIP - PROFIT FIRMS : OUTPUT MAX OUTPUTMINIMUM INPUT MAX PROFIT = R – C FACTOR INCOME FACTOR INPUT

COST ACCOUNTS’ECONOMISTS’ COST COST EXPLICIT IMPLICIT + EXPLICiT COST COST COST OPPORTUNITY COST ECONOMY HOUSEHOLD + FIRM + GOVT. - ECONOMY SYSTEM OF PRODUCTION, DISTRIBUTION & CONSUMPTION OF GOODS & SERVICES CLOSED OPEN

UNLIMITEDLIMITED CHOICERESOURCES WHAT HOW FOR WHOM TO TO TO PRODUCE PRODUCE PRODUCE THREE CHOICE PROBLEM OF AN ECONOMY SCARCITY

DEFINATION : Mc Nair & Merian : THE USE OF ECONOMIC MODELS OF THOUGHT TO ANALYSE BUSINESS SITUATION. Spencer & Sigelmen : ME IS THE INTEGRATION OF ECONOMIC THEORY WITH BUSINESS PRACTICE FOR THE PURPOSE OF FACILITATING DECISION MAKING & FORWARD PLANNING BY MANAGEMENT. D.S. Watson : ME-PRICE THEORY IN THE SERVICE OF BUSINESS EXECUTIVES.

Brigham & Pappas : ME-THE APPLICATION OF ECONOMIC THEORY & METHODOLOGY TO BUSINESS ADMINISTRATION PRACTICE. Huges : ME – A FUNDAMENTAL ACADEMIC SUBJECT WHICH SEEKS TO UNDERSTAND AND TO ANALYSE THE PROBLEMS OF BUSINESS DECISION MAKING.

FEATURES :  ME IS CONCERNED WITH DECISION MAKING i.e. IT DEALS WITH IDENTIFICATION OF ECONOMIC CHOICE AND ALLOCATION OF SCARCE RESOURCES.  IT IS GOAL – ORIENTED & PRESCRIPTIVE. IT DEALS WITH HOW DECISION SHOULD BE MADE BY BUSINESS FIRMS TO ACHIEVE ORGANISATIONAL GOAL.

 IT IS CONCERNED WITH THOSE ANALYTICAL TOOLS WHICH ARE USEFUL IN IMPROVING DECISION MAKING.  ME IS BOTH CONCEPTUAL & METRICAL.  ME PROVIDES THE LINK BETWEEN TRADITIONAL ECONOMICS AND THE DECISION–SCIENCES FOR MANAGERIAL DECISION MAKING.

DIFFERENCE B/W ME & ECONOMICS  ME INVOLVES APPLICATIONS OF ECONOMIC PRINCIPLES TO THE PROBLEMS OF THE FIRM. ECONOMICS DEALS WITH THE BODY OF PRINCIPLES ITSELF.  ME IS MICRO-ECONOMIC IN CHARACTER. ECONOMICS IS BOTH MICRO & MACRO IN NATURE.  ME DEALS WITH THE FIRM AND HAS NOTHING TO DO WITH AN INDIVIDUA’L ECONOMIC PROBLEMS. BUT MICRO ECONOMICS AS A BRANCH OF ECONOMICS DEALS WITH BOTH ECONOMICS OF THE INDIVIDUAL AND THE FIRM.

 SCOPE OF ECONOMICS IS WIDER THAN ME AS MICRO ECONOMICS DEALS WITH DISTRIBUTION THEORY i.e. PROFIT, RENT, WAGES BUT ME DEALS WITH ONLY PROFIT.  ECONOMIC THEORY HYPOTHESISED ECONOMIC RELATIONSHIP BUT ME ADOPTS, MODIFIES AND REFORMULATES ECONOMIC MODELS TO SUIT THE SPECIFIC CONDITIONS.  ECONOMIC THEORY MAKES CERTAIN ASSUMPTION WHEREAS ME INTRODUCES CERTAIN FEEDBACKS SUCH AS OBJECTIVES OF THE FIRM, MULTI PRODUCT NATURE OF MANUFACTURE, BEHAVIOURAL CONSTRAINS ETC.

ME IS CONCERNED WITH DECISION MAKING REGARDING :  LEAST COST INPUT MIX.  PRODUCT MIX.  PRODUCTION TECHNIQUE.  LEVEL OF OUTPUT.  PRICE OF THE PRODUCT.  INVESTMENT DECISION.  ADVERTISING OUTLAY.  DISTRIBUTION BETWEEN DIFFERENT MEDIA.

ME INVOLVES THE APPLICATION OF  ECONOMIC CONCEPTS.  TOOLS  TECHNIQUES  PRINCIPLES & THEORIES OF BUSINESS FIRMS. * EVALUATE THE BEST FEASIBLE ALTERNATIVES AND CHOOSE THE BEST ONE. * CONCERNED WITH ANALYTICAL TOOL FOR DECISION MAKING. * FORWARD PLANNING, GOES HAND IN HAND IN DECISION MAKING.

SCOPE OF MANAGERIAL ECONOMICS 1 DEMAND ANALYSIS & FORECASTING (DEMAND DECISIONS) 2 COST & PRODUCTION ANALYSIS (INPUT-OUTPUT DECISIONS) PROFIT ANALYSIS (PROFIT MAXIMISATION AND ALTERNATIVE THEORIES) 5 RISKS & UNCERTAINITY ANALYSIS (ECONOMIC FORECASTING & PLANNING) 4 INVESTMENT ANALYSIS (PROJECT APPRAISAL & INVESTMENT DECISIONS) 3 MARKET STRUCTURE & PRICING POLICIES (PRICE-OUTPUT DECISIONS)

MANAGERIAL ECONOMICS & OTHER DISCIPLINES  MANAGERIAL ECONOMICS & ECONOMICS :  MICRO ECONOMICS :  PRICE THEORIES  DEMAND CONCEPT  MARKET STRUCTURE  MACRO ECONOMICS :  NATIONAL INCOME ACCOUNTING

 MANAGERIAL ECONOMICS & STATISTICS & MATHEMATICS :  STATISTICAL TOOLS  PROBABILITY  CALCULUS  ALGEBRA  LOGARITHMS  MANAGERIAL ECONOMICS & OPERATION RESEARCH :  THEORY OF GAMES  ASSIGNMENT MODELS  LINEAR PROGRAMMING  WAITING LINE PROBLEMS  INVENTORY MODELS

 MANAGERIAL ECONOMICS & ACCOUNTING PRINCIPLES :  PROFIT & LOSS STATEMENTS.  BALANCE SHEET OR POSITION STATEMENT.

MANAGERIAL DECISION CAN BE CLASSIFIED INTO VARIOUS CATEGORIES : 1. FINANCIAL DECISIONS : COSTING, BUDGETING, ACCOUNTING, AUDITING, TAX PLANNING, DIVIDEND DISTRIBUTION. 2. PRODUCTION DECISIONS : PRODUCT QUANTITY, INVENTORY CONTROL, CHOICE OF TECHNOLOGY, PLANT LOCATION & LAYOUT, PRODUCTION SCHEDULE.

3. PERSONNEL DECISIONS : RECRUITMENT, SELECTION, TRAINING, DEVELOPMENT, PLACEMENT, PROMOTION, TRANSFER, RETIREMENT. 4. MARKETING DECISION : SALES VOL. SALES FORCE, SALES PROMOTION, PRICE DISCOUNT, MR, AFTER SALES SERVICE, NEW PRODUCT POSITIONING, ADVERTISING. 5. MISC. DECISIONS : INFORMATION SYSTEM, DATA PROCESSING, PUBLIC RELATIONS.

ROLE OF MANAGERIAL ECONOMICS IN BUSINESS DECISION-MAKING ECONOMIC THEORY & METHODOLOGY DECISION PROBLEMS IN BUSINESS MANAGERIAL ECONOMICS (Application of Economics Theory and Methodology of Solving Business Problems) OPTIMAL SOLUTIONS TO BUSINESS PROBLEMS

PERFORMING SENSITIVITY ANALYSIS CHOOSING BEST ALTERNATIVE ASSESSING CONSEQUENCES OF VARIOUS ALTERNATIVES EXPLORING AVAILABLE ALTERNATIVES DETERMINING OBJECTIVES DEFINING BUSINESS PROBLEM STEPS IN DECISION MAKING