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Chapter 1 The Nature and Scope of Managerial Economics.

The emergence of managerial economics as a separate course of management studies can be attributed to at least three factors: a growing complexity of business decisionmaking process due to changing market conditions and business environment, b consequent upon, the increasing use of economic logic, concepts, theories and tools of economic analysis in the process of business decision-making, and c rapid increase in demand for professionally trained managerial manpower.

Let us take a look at how these factors have contributed to the creation of managerial economics as a separate branch of study. The business decision-making process has become increasingly complex due to the evergrowing complexity of the business world.

There was a time when business units shops, firms, factories, mills, etc. Big industries were few and the scale of business operation was relatively small. The managerial skills acquired through traditional family training and experience were sufficient to manage small and medium-scale business. Although a large part of private business is still run on a small scale and managed in the traditional style of business management, the industrial business world has changed drastically in size, nature and content.

The growing complexity of the business world can be attributed to the growth of large-scale industries, growth of a large variety of industries, diversification of industrial products, expansion and diversification of business activities of corporate firms, growth of multinational corporations, and mergers and takeovers, especially after World War II. These factors have contributed to an increase in inter-firm, inter-industry and international rivalry, competition, risk and uncertainty.

Business decision-making in this kind of business environment is a very complex affair. Family training and experience is no longer sufficient to meet managerial challenges. The growing complexity of business decision-making has inevitably increased the application of economic concepts, theories and tools of economic analysis in this area.

The reason is that making an appropriate business decision requires a clear understanding of market conditions, market fundamentals and the business environment. This requires an intensive and extensive analysis of the market conditions on the product, input and financial markets. On the other hand, economic theories, logic and tools of analysis have been developed to analyze and predict market behaviour.

The application of economic concepts, theories, logic and analytical tools in the assessment and prediction of market conditions and business environment has proved to be of great help in business decision-making. The contribution of economics to business decisionmaking has come to be widely recognized.

Consequently, economic theories and analytical tools which are widely used in business decision-making have crystallized into a separate branch of management studies, called managerial economics or business economics.

Managerial economics constitutes economic theories and analytical tools that are widely applied to business decision-making. It is, therefore useful to know, what is economics1. Economics is a social science. Its basic function is to study how people individuals, households, firms and nationsmaximize their gains from their limited resources and opportunities. In economic terminology, this is called maximizing behaviour or, more appropriately, optimizing behaviour.

Optimizing behaviour is selecting the best out of available options with the objective of maximizing gains from the given resources. Economics is thus a social science which studies human behaviour in relation to optimizing allocation of available resources to achieve the given ends. For example, economics studies how households allocate their limited resources income between various goods and services they consume so that they are able to maximize their total satisfaction.

It analyses how households with limited income decide what to consume and how much to consume with the aim of maximizing total utility. Economics studies how producers, that is, the firms, decide on the commodity to produce, the production technology, location of the firm, market or market segment to cater to, price of the product, the amount to spend on advertising if necessary and the strategy on facing competition, etc.

It also studies how nations allocate their resources, men and material, between competing needs of the society so that economic welfare of the society can be maximized. Economics is obviously a study of the choice-making behaviour of the people. In reality, however, choice-making is not so simple as it looks because the economic world is very complex and most economic decisions have to be taken under the condition of imperfect knowledge, risk and uncertainty.

Therefore, taking an appropriate decision or making an 6. The economists, in their endeavour to study the complex decision-making process, have developed a large kit of analytical tools and techniques with the aid of mathematics and statistics and have developed a large corpus of economic theories with a fairly high predictive power.

The analytical tools and techniques, economic laws and theories constitute the body of economics. The subject matter of economic science consists of the logic, tools and techniques of analyzing economic phenomena, evaluating economic options, optimization techniques and economic theories. The application of economic science is all pervasive. More specifically, economic laws and tools of economic analysis are now applied a great deal in the process of business decision-making.

This has led, as mentioned earlier, to the emergence of a separate branch of study called managerial economics.

Managerial economics can be defined as the study of economic theories, logic and tools of economic analysis that are used in the process of business decision making. Economic theories and techniques of economic analysis are applied to analyse business problems, evaluate business options and opportunities with a view to arriving at an appropriate business decision. Managerial economics is thus constituted of that part of economic knowledge, logic, theories and analytical tools that are used for rational business decisionmaking.

Let us now look at some representative definitions of managerial economics. Some other Definitions Managerial economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making2. Mansfield Managerial economics Spencer and Seigelman Managerial economics is concerned with the application of economic principles and methodologies to the decision-making process within the firm or organization.

It seeks to establish rules and principles to facilitate the attainment of the desired economic goals of management4. Douglas Managerial economics applies the principles and methods of economics to analyse problems faced by management of a business, or other types of organisations and to help find solutions that advance the Davis and Chang best interests of such organizations5. These definitions of managerial economics together reveal the nature of managerial economics.

Economics contributes a great deal towards the performance of managerial duties and responsibilities. Just as biology contributes to the medical profession and physics to engineering, economics contributes to the managerial profession. All other qualifications being the same, managers with a working knowledge of economics can perform their functions more efficiently than those without it.

The basic function of the managers of a business firm is to achieve the objective of the firm to the maximum possible extent with the limited resources placed at their disposal. The emphasis here is on the maximization of the objective and limitedness of the resources. Had the resources been unlimited, like sunshine and air, the problem of economising on resources or resource management would have never arisen.

But resources, howsoever defined, are limited. Resources at the disposal of a firm, whether finance, men or material, are by all means limited. Therefore, one of the basic tasks of the management is to optimize the use of the resources in its effort to achieve the goals of the firm.

Self-Instructional Material. Economics thus provides analytical tools and techniques that managers need to achieve the goals of the organization they manage. Therefore, a working knowledge of economics, not necessarily a formal degree, is essential for managers.

Managers are essentially practicing economists. In performing his functions, a manager has to take a number of decisions in conformity with the goals of the firm. Many business decisions are taken under the condition of risk and uncertainty.

Risk and uncertainty arise mainly due to uncertain behaviour of the market forces, changing business environment, emergence of competitors with highly competitive products, government policy, external influence on the domestic market and social and political changes in the country.

The complexity of the modern business world adds complexity to business decision making. However, the degree of uncertainty and risk can be greatly reduced if market conditions are predicted with a high degree of reliability. The prediction of the future course of business environment alone is not sufficient. What is equally important is to take appropriate business decisions and to formulate a business strategy in conformity with the goals of the firm.

Taking appropriate business decisions requires a clear understanding of the technical and environmental conditions under which business decisions are taken. Application of economic theories to explain and analyse the technical conditions and the business environment contributes a good deal to the rational decision-making process.

Economic theories have, therefore, gained a wide range of application in the analysis of practical problems of business. With the growing complexity of business environment, the usefulness of economic theory as a tool of analysis and its contribution to the process of decision-making has been widely recognized. Baumol6 has pointed out three main contributions of economic theory to business ecomomics. First, one of the most important things which the economic theories can contribute to the management science is building analytical models which help to recognize the structure of managerial problems, eliminate the minor details which might obstruct decision-making, and help to concentrate on the main issue.

Secondly, economic theory contributes to the business analysis a set of analytical methods which may not be applied directly to specific business problems, but they do enhance the analytical capabilities of the business analyst. Thirdly, economic theories offer clarity to the various concepts used in business analysis, which enables the managers to avoid conceptual pitfalls. Business decision-making is essentially a process of selecting the best out of alternative opportunities open to the firm.

The process of decision-making7 comprises four main phases: i determining and defining the objective to be achieved; ii collections and analysis of information regarding economic, social, political and technological environment and foreseeing the necessity and occasion for decision; iii inventing, developing and analysing possible course of action; and iv selecting a particular course of action, from the available alternatives. This process of decision-making is, however, not as simple as it appears to be.

Steps ii and iii are crucial in business decision-making. These steps put managers analytical. Modern business conditions are changing so fast and becoming so competitive and complex that personal business sense, intuition and experience alone are not sufficient to make appropriate business decisions. Personal intelligence, experience, intuition and business acumen of the decision makers need to be supplemented with quantitative analysis of business data on market conditions and business environment.

It is in this area of decision-making that economic theories and tools of economic analysis contribute a great deal. For instance, suppose a firm plans to launch a new product for which close substitutes are available in the market.

One method of deciding whether or not to launch the product is to obtain the services of business consultants or to seek expert opinion. If the matter has to be decided by the managers of the firm themselves, the two areas which they will need to investigate and analyse thoroughly are: i production related issues, and ii sale prospects and problems. In the field of production, managers will be required to collect and analyse data on: a available techniques of production b cost of production associated with each production technique c supply position of inputs required to produce the planned commodity d price structure of inputs e cost structure of competitive products f availability of foreign exchange if inputs are to be imported In order to assess the sales prospects, managers will be required to collect and analyse data on: a b c d e f g.

It is in this kind of input and output market analysis that knowledge of economic theories and tools of economic analysis aid the process of decision-making in a significant way. Economic theories state the functional relationship between two or more economic variables, under certain given conditions.

Application of relevant economic theories to the problems of business facilitates decision-making in three ways. First, it gives clear understanding of various economic concepts i. For example, the concept of cost includes total, average, marginal, fixed, variable, actual costs, and opportunity cost. Economics clarifies which cost concepts are relevant and in what context.

Second, it helps in ascertaining the relevant variables and specifying the relevant data. For example, it helps in deciding what variables need to be considered in estimating the demand for two different sources of energypetrol and electricity.

Third, economic theories state the general relationship between two or more economic variables and events. The application of relevant economic theory provides consistency to business analysis and helps in arriving at right conclusions.

Thus, application of economic theories to the problems of business not only guides, assists and streamlines.

Chapter 1 The Nature and Scope of Managerial Economics.

Reflecting the highly globalized nature of tastes, production, labor markets, and financial markets in today's world, Managerial Economics in a Global Economy, Eighth Edition, presents the theory of the firm as a unifying theme to examine the managerial decision-making process. Adopting a global perspective, it synthesizes economic theory, decision science, and business administration studies, Cited by: Managerial Economics: Principles and Worldwide Application: adapted version 7th Edition. Try the new Google Books. Check out the new look and enjoy easier access to your favorite features. Try it now.

Views 8 Downloads 0 File size 5MB. Brooker, Ph. All rights reserved. Prepared by Robert F. Slide 8 Rules of Differentiation Power Function Rule: The derivative of a power function, where a and b are constants, is defined as follows. Slide 12 Rules of Differentiation Chain Rule: The derivative of a function that is a function of X is defined as follows.

The emergence of managerial economics as a separate course of management studies can be attributed to at least three factors: a growing complexity of business decisionmaking process due to changing market conditions and business environment, b consequent upon, the increasing use of economic logic, concepts, theories and tools of economic analysis in the process of business decision-making, and c rapid increase in demand for professionally trained managerial manpower. Let us take a look at how these factors have contributed to the creation of managerial economics as a separate branch of study. The business decision-making process has become increasingly complex due to the evergrowing complexity of the business world. There was a time when business units shops, firms, factories, mills, etc. Big industries were few and the scale of business operation was relatively small. The managerial skills acquired through traditional family training and experience were sufficient to manage small and medium-scale business. Although a large part of private business is still run on a small scale and managed in the traditional style of business management, the industrial business world has changed drastically in size, nature and content.

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 Мне много чего нужно, мистер Беккер, но неприятности точно не нужны. Кроме того, тот старик вроде бы обо всем позаботился. - Канадец. - Да.

Она чувствовала, что здесь что-то не то, но не могла сообразить, что. Она достаточно хорошо знала Танкадо и знала, что он боготворил простоту. Его доказательства, его программы всегда отличали кристальная ясность и законченность.

 Если Стратмор не забил тревогу, то зачем тревожиться. - Да в шифровалке темно как в аду, черт тебя дери. - Может быть, Стратмор решил посмотреть на звезды.

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The emergence of managerial economics as a separate course of management studies can be attributed to at least three factors: a growing complexity of business decisionmaking process due to changing market conditions and business environment, b consequent upon, the increasing use of economic logic, concepts, theories and tools of economic analysis in the process of business decision-making, and c rapid increase in demand for professionally trained managerial manpower.

Lothair P. 08.06.2021 at 06:48

PART I.

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