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ICFAI LAW SCHOOL, ICFAI UNIVERSITY

DEHRADUN

Managerial Economics
TOPIC- Economics, Managerial Economics, Scope of managerial
economics

SUBMITTED TO: - Prof. Amita Sharma

SUBMITTED BY: - Pallavi Kumari

ENROLLMENT NO: - 23FLICDDN01026

BBA LLB (HONS)

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TABLE OF CONTENT
S.NO. PARTICULARS PG.NO

1. ECONOMICS 3

2. MICRO ECONOMICS 3

3. MACRO ECONOMICS 4

4. MANAGERIAL ECONOMICS 4-5

5. SCOPE OF MANAGERAL ECONOMICS 5-6

6. THEORY OF DEMAND 7

7. THEORY OF PRODUCTION AND 7

PRODUCTION OF DECISION
8. ANALYSIS OF MARKET 7-8
STRUCTURE AND PRICING
THEORY

9. PROFIT ANALYSIS AND PROFIT 8

MANAGEMENT
10. THEORY OF CAPITAL AND 8-9
INVESTMENT DECISION
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ECONOMICS
Economics is a branch of social science. Social science is study of society.
Social science mainly includes: economics, political science, sociology, some
fields of humanities like anthropology, jurisprudence psychology, history etc.

 Economics is study of how individuals, households, firms, industries and

economy at large (nation) utilize limited resources and gaining maximum
satisfaction through it.

1. FOR EXMAPLE: 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.
2. FOR EXAMPLE: At macro level, economics studies how nation allocate
their resources, men, material, machinery between competing needs of
society so that economics welfare of society can be maximised.

There are two branches of economics. They are:

i. Micro economics
ii. Macro economics

Micro economics: Micro economics is on small level.

Microeconomics is the branch of economics that considers the behaviour of

decision takers within the economy, such as individuals, households and firms.
The word 'firm' is used generically to refer to all types of business.

Micro economics is study of behaviour of individual consumers and firms. It is

the study of segment of the economy. It looks the issues regarding – consumer
behaviour, demand, supply, theory of firm, production, consumption, pricing etc

Microeconomics is the social science that studies the implications of incentives

and decisions, specifically how those affect the utilization and distribution of
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resources on an individual level. Microeconomics shows how and why different

goods have different values, how individuals and businesses conduct and benefit
from efficient production and exchange, and how individuals best coordinate
and cooperate with one another. Generally speaking, microeconomics provides
a more detailed understanding of individuals, firms, and markets, whereas
macroeconomics provides a more aggregate view of economies.

Macro economics: Macroeconomics is on large level.

Macroeconomics is the branch of economics that deals with the structure,

performance, behaviour, and decision-making of the whole, or aggregate,
economy. The two main areas of macroeconomic research are long-term
economic growth and shorter-term business cycles.

Macroeconomics is a branch of economics that studies the behaviour of an

overall economy, which encompasses markets, businesses, consumers, and
governments. Macroeconomics examines economy-wide phenomena such as
inflation, price levels, rate of economic growth, national income, gross domestic
product (GDP), and changes in unemployment.

Macro economics is the study of economy as a whole. It looks at aggregate of

variables like: national income output, inflation, economic growth, monetary
policy, fiscal policy, government borrowings (national or international study)
import and export.

MANAGERIAL ECONOMICS
 Managerial economics is basically economics for managers.
 Managerial economics is also a business economics that is all about
application of economics theories, concept, economic rules, economic
tools, for better decision making in the organisation
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 It bridges a gap between economic theory and management practices.

 Managerial economics is blend of economics and management
 It is an applied economics

Managers use economic frameworks in order to optimize profits, resource

allocation and the overall output of the firm, whilst improving efficiency and
minimising unproductive activities. These frameworks assist organisations to
make rational, progressive decisions, by analysing practical problems at both
micro and macroeconomic levels. Managerial decisions involve forecasting
(making decisions about the future), which involve levels of risk and
uncertainty. However, the assistance of managerial economic techniques aid in
informing managers in these decisions.

The two main purposes of managerial economics are:

1. To optimize decision making when the firm is faced with problems or

obstacles, with the consideration and application of macro and
microeconomic theories and principles.
2. To analyse the possible effects and implications of both short and long-
term planning decisions on the revenue and profitability of the business.

The core principles that managerial economist use to achieve the above
purposes are:

 monitoring operations management and performance,

 target or goal setting
 talent management and development.

Scope of managerial economics

The scope of managerial economics comprises all those economics concepts

theories and tools of analysis which can be used to analyse issued related to
demand prospects, production and cost, market structure, level of competition.
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Micro economics appalled to operational issues

 It includes all those problems which arises within the business

organisation and fall within the preview and control the management.

FOR EXAMPLE: Choice of business

What to produce,

How to produce,

By whom to produce

1. Nature of product (what)

2. Choice of size of the firm (how)
3. Choice of technology (by whom)
4. How to manage profit and capital
5. What is location that where to set up industry
 Micro economics is applied
 Here complete control of manager

Macroeconomics appalled to business environment

 Environment issues pertain to the general business environment in which

a business operates. They are related to the overall economics social and
political with legal environment.
 Areas occurred outside the organisation.
 Macro economics is applied
 There is no complete control of manager, control of manager is only done
by monitoring and take decision.

Under operational issues some theory comes:

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1. Theory of demand: under theory of demand there is law of demand and

law of supply

Law of demand

The law of demand states that when the price of a product goes up, the
quantity demanded will go down – and vice versa. It's an intuitive concept
that tends to hold true in most situations (though there are exceptions). The
law of demand is a foundational principle in microeconomics, helping us
understand how buyers and sellers interact in the marketplace.

Law of supply

Supply is on the basis of producer.

2. Theory of Production and Production Decisions

Production theory explains the relationship between inputs and output. It
also explains under what conditions costs increase or decrease; how total
output behaves when units of one factor (input) are increased keeping
other factors constant, or when all factors are simultaneously increased;
how can output be maximized from a given quantity of resources; and
how can the optimum size of output be determined? Production theory,
thus, helps in determining the size of the firm, size of the total output and
the amount of capital and labour to be employed, given the objective of
the firm.

3. Analysis of Market Structure and Pricing Theory

Price theory explains how price is determined under different kinds of
market conditions; when price discrimination is desirable, feasible and
profitable; and to what extent advertising can be helpful in expanding
sales in a competitive market. Thus, price theory can be helpful in
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determining the price policy of the firm. Price and production theories
together, in fact, help in determining the optimum size of the firm.

4. Profit analysis and profit management

Profit making is the most common objective of all business undertakings.
But, making Profit a satisfactory profit is not always guaranteed because a
firm has to carry out its activities under conditions of certainty with regard
to
(i) demand for the product,
(ii) input prices in the factor market,
(iii) nature and degree of competition in the product market, and
(iv) price behaviour under changing conditions in the product market,
etc.

Therefore, an element of risk is always there even if the most efficient

techniques are used for predicting the future and even if business
activities are meticulously planned. The firms are, therefore, supposed to
safeguard their interest and avert or minimize the possibilities of risk.
Profit theory guides firms in the measurement and management of profit,
in making allowances for the risk premium, in calculating the pure return
on capital and pure profit and also for future profit planning.

5. Theory of Capital and Investment Decisions

Capital like all other inputs, is a scarce and expensive factor. Capital is the
foundation of business. Its efficient allocation and management are one of
the most important tasks of the managers and a determinant of the success
level of the firm. The major issues related to capital are (1) choice of
investment project, (ii) assessing the efficiency of capital, and (iii) most
efficient allocation of capital. Knowledge of capital theory can contribute
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a great deal in investment-decision making, choice of projects,

maintaining the capital, capital budgeting, etc.