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Introduction to ManagerialEconomics

For PG Management Students

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Economic Theory

Microeconomics

Study of the economic behavior ofindividualdecision-making units.

Relevance to Managerial Economics

Macroeconomics

Study of the total or aggregate level of

output, income, employment,consumption, investment, and prices forthe economy viewed as a whole.

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Economic Methodology

Economic Models

Abstract from details

Focus on most important determinants ofeconomic behavior cause and effect

Evaluating Economic Models

A model is accepted if it predicts

accurately and if the predictions followlogically from the assumptions.

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Decision Sciences

Mathematical Economics

Expresses and analyzes economicmodels using the tools of mathematics.

Econometrics

Employs statistical methods to estimateand test economic models using

empirical data

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Factors for the Growth of ME

1.Complexity of Business Decision MakingProcess due to: Changing Market Conditions

Business Environment

2. Increasing use of economic logic,concepts, theories and tools of analysis

in decision making3. Increasing demand for professional

Managers

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The Definitions

Spenser and Seligman

Managerial Economics is theintegration of Economic Theory withBusiness Practice for the purpose offacilitating decision making and

forward planning by management.

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Davis & Chang

Managerial Economics applies the

principles and methods of Economicsto analyze problems of a businessand to help find solution thatadvances the best interest of such

organization.

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Management DecisionProblems

Economic Theory-Micro Economics

-Macro Economics

Decision Science-Mathematical Economics- Econometrics

Managerial EconomicsApplication of EconomicTheory & Decision

Science Tools

Optimal Solution toManagerial DecisionProblems

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Decision Making Process

Defining the Problem

Identifying the factors / variables thatcaused the problem

Determining the Objective /s Exploring the alternative Solutions with

Prediction of the Consequences of each

* Social Constrains

* Organizational Constraints* Input Constraints

Select the best solution and implement

Evaluate Performance

Improve for further use / Discard

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Focus of a Manager

Intra Org Envt

IntermediateEnvt.

Domestic

EnvtGlobalEnvt