Transcript managerial economix

MANAGERIAL ECONOMIX
CONTENTS…
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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
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Managerial Economics, is normative economics dealing
with decision making problems - how to take business
decisions in order to attain given set of objectives.
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It advices what ought to be done and how it should be
done.
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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
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M.E.T is advisory in nature, in decision
making, and has a practical aspect.
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T.E.T is related to description & analysis
of an economic problem.
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In simple terms MET is Normative and
TET is Positive economic approach.
what’s new in
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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.
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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…
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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
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Resource Allocation: Scare resources are to be
used with utmost efficiency to get optimal results.
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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.
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…
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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
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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
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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
Thank You