Description
Managerial Economics generally refers to the integration of economic theory with business practice. While economic provides the tool which explain various concepts such as demand, supply, price, competition etc. Managerial economics applies these tools to the management of business, in this sense managerial economics is also understood to refer to business economics or applied economics.
Thai Nguyen University (Vietnam) - Southern Luzon University (Philippines)
Assignment On
Managerial !onomi!s
Stu"ent Name# L$U T%& V'N%
(lass# ISDBA- 01
nglish name# LO
Mo"ule Tutor# Asso!) Pro*) +r) +o Anh Tai
Mo"ule Title# MANA,-'AL (ONOM'(S
+ate +ue . Su/mission +ate# Septem/er0 1231
1
Pro/lem 3# Please e4plain a/out the nature an" s!ope o* managerial
e!onomi!s5 4amples
Answer:
Managerial Economics generally refers to the integration of economic
theory with business practice. While economic provides the tool which explain
various concepts such as demand, supply, price, competition etc. Managerial
economics applies these tools to the management of business, in this sense
managerial economics is also understood to refer to business economics or
applied economics.
Managerial economics lies on the border line of management and
economics. It is a hybrid of two disciplines and it is primarily an applied branch
of knowledge. Management deals with principles which help in decision making
under uncertainty and improve effectiveness of organiation. Economics on the
other hand provides a set of propositions for optimum allocation of scare
resources to achieve the desired ob!ective
• Nature o* Managerial !onomi!s#
It is true that managerial economics aims at providing help in decision
making by firms. "or this purpose it draws heavily on the prepositions of micro
economic theory. #ote that micro economics studies the phenomenon at the
individual level and behavior of consumers, firms. $he concepts of micro
economics used fre%uently in managerial economics are elasticity, marginal cost,
managerial revenue, market structure and their significance in primary policies.
&
'ome of these concepts however provide only the logical base and have to be
modified in practice.
Micro economics assists firms in forecasting. #ote that micro economics
theory studies the economy at the aggregative level and ignores the
distinguishing features of individual observations. "or example micro
economics indicates the relationship between the
( Magnitude of Investment and )evel of #ational Income
( )evel of #ational Income and )evel of Employment
( )evel of *onsumption and #ational Income etc.
$herefore the postulates of microeconomics can be used to identify the
level of demand at some future point in time, based on the relationship between
the level of national income and demand for electric motors. +lso the demand
for durable goods such as refrigerators, air(conditioners, motor cars depends
upon the level of national income.
Managerial economics is decidedly applied branch of knowledge.
$herefore the emphasis is laid on those prepositions which are likely to be
useful to the management. $he precision of a scientist is not motivating factor in
research activity. Improvement in the %uality of results is attempted, provided
the additional cost is not very high and the decision maker can wait. "or
example it may be possible to have more accurate data on demand for the firm,s
product by taking into consideration, additional factors. -ut this may not be the
attempted because the decision has to be made without delay. -eside, more
accurate forecasts may not be !ustified on cost considerations.
.
Management economics is perspective in nature and character. It
recommends that it should be done alternate conditions. "or example if the price
of the synthetic yarn falls by /01 it may be desirable to increase its use in
producing different types of textiles. $hus managerial economics is one of the
normative sciences and reflects upon the desirability or otherwise of the
prepositions. "or example if the analysis suggests that the benefit(cost ratio is
used as the criterion for pro!ect appraisal it is recommended that the firm should
not install a large plant. *ontract this with the positive sciences which state the
prepositions without connecting upon what should be done. "or example if the
distribution of income has become more uneven it is stated without indicating
what should be done to correct this phenomenon.
Managerial economics to the extent that it is uses economic thought is a
science, but it is an applied science. Economic thought uses deductive logic 2if
3 is true, then 4 is true5. "or example if the triangles ate congruent then angles
are e%ual. $o have confidence in the findings, the prepositions deducted are
sub!ect empirical verification. "or example empirical studies try to verify
whether cost curves faced by a firm are really 6 shaped as suggested by the
theory. "urthermore there is an attempt to generalie the prepositions which
provide a predictive character. "or example empirical studies may suggest that
every 11 rise in expenditure on advertising, the demand for the product shall
increase by /1.
7
Managerial economics uses scientific approach. In practice, some firms
may use simple rules based on past experience. 8owever the %uality of decisions
made can be improved using a systematic approach.
• S!ope o* Managerial !onomi!s#
'cope means province or an area of study. $here is hardly any uniform
pattern as regards the scope of managerial economics as it is comparatively a
new sub!ect. 8owever, the scope of managerial economics may be discussed
under following points.
9 Whether managerial economics is normative or positive economics:
Economics is divided in to positive economics and normative economics.
;ositive economics is that branch of economics which studies the things as they
are. #ormative economics deals with the things they ought to be or should be.
;ositive economics is descriptive in nature where as normative economics is
prescriptive in nature. Managerial economics is considered to be the part of
normative economics. It lays more emphasis on prescribing choice and action
and less on explaining what happened. Managerial economics draws descriptive
economics and tries to pass !udgments to value in the context of time.
9 Area of Study: -roadly speaking managerial economics deals with the
following topics:
( <emand +nalysis and "orecasting: Effective decision making at the firm
level depends on accurate estimates of demand. <emand analysis aims at
discovering the forces that determine sales. $he demand analysis mainly relates
/
to the study of demand, determinants, demand distinctions and demand
forecasting.
( *ost and ;roduction +nalysis: *ost estimates are also essential for
effective decision making and production planning at the firm level. ;rofit
planning, cost control and sound pricing practices call for accurate cost and
production analysis. *ost relations are production function and cost control.
( ;ricing <ecisions, ;olicies and ;ractices: ;ricing is an important area of
managerial economics. 'uccess of a business firm largely depends on the
accuracy of price decisions. ;rice determinations under different markets,
pricing methods policies, product line pricing and price forecasting are some of
the topics of this area.
( ;rofit Management: -usiness firms are mainly profit hunting
institutions. $he success of the firm is always measured in terms of profits.
#ature and management of profit, profit policies and techni%ues and profit
planning are the important aspects covered in this area.
( *apital Management: $he most complex, troublesome problem faced by
the business manager is the capital management. *apital management implies
planning and control of capital expenditure. *ost of capital rate of return and
selection of pro!ects are the important points under this.
( )inear ;rogramming and $heory of =ames: 'ince managerial
economics and operations research are closely connected with each other,
managerial economics has started using such techni%ues of operations research
as linear programming and the theory of games. >ecently the linear
?
programming and the theory of games have been brought as part of managerial
economics.
( ;rofits @ a central point in managerial economics: ;rofit in other words
is the central concept of managerial economics. Without profits business firms
can not run. $he maximiation of profits is the main ob!ective of any firm or a
business unit. $he survival of the firm is determined by the ability of a firm to
earn profits. ;rofit is the main indicator of firm,s success.
( Aptimiation: Aptimiation is another important concept used in
economic theory and managerial economics. Managerial economics often aims
at optimiing a given ob!ective. In recent years, a new concept was found out
called B'ub(AptimiationC. $he greatest merit of this concept is its flexibility.
Pro/lem 1# Sele!t one o* them to "is!uss
1. +ccording to the record data of the production department draw the
total output curve as follow:
$he current level of labor employed is at )1 and the head of the
department suggests that should not employ more labor than that level.
Explain why and what his suggestion will base onD
E
Autput
)abour
)1
Answer:
$he suggestion of the head of the production department is a decision in
the short run.
F In the short run, capital is fixed
F Anly changes in the variable labor input can change the level of output
F 'hort run production function: G H f2),I5 H f2)5
$he production function consists of two elements of )abor 2)5 and capital
2I5. In the short run, the capital is fixed, unchanging, or I is a constant. 'o ) is
the only variable of the production function in the short run, therefore, G H f 2)5.
F Average product of labor : AP = Q/L
F Marginal product of labor: MP = ?Q/?L
F When AP is rising MP is greater than AP
F When AP is falling MP is less than AP
F When AP reaches it ma!imum AP = MP
+ccording to the La" of diminishing marginal product: +s usage of a
variable input increases, a point is reached beyond which its marginal product
decreases.
8ere, the head of the production department is interested in & problems:
F #echnical efficiency# +chieved when maximum amount of output is
produced with a given combination of inputs.
F $conomic efficiency# +chieved when firm is producing a given output at
the lowest possible total cost.
J
We can see in the following panels:
'pecifically, the head of the production department is interested in the
average labor productivity or average product per one labor 2+;5. $he head of
the department need to increase the number of labor to a certain level, at which
the +; greatest or +; is maximum. $his is achieved when: +; H M;.
$hus, at the panel +, we can see )1 is the level of labor employed, at
which the average product per one labor 2+;5 e%uals the marginal product of
labor 2M;5: +; H M;. +nd when exceeds )1 level, as the usage of one labor
rises, the added output eventually diminished.
'o, the head of the production department based on the )aw of
<iminishing marginal product and saw that +; H M; at the )1 level and this is
K
the best level of labor employed. 'o he suggested that should not employ more
labor than )1 level.
10
-e*eren!es
1. +sso. ;rof. <o +nh $ai ;h<, &01&. Managerial Economics, )ecture #otes.
&.http:LLwww.scribd.comLdocL&&?.0&1&L#ature(and('cope(of(Managerial(
Economics(#otes
..http:LLwww.scribd.comLdocL.E0J&J7EL#ature(and('cope(of(Managerial(
Economics(M-'("irst(4ear
11
doc_561263462.doc
Managerial Economics generally refers to the integration of economic theory with business practice. While economic provides the tool which explain various concepts such as demand, supply, price, competition etc. Managerial economics applies these tools to the management of business, in this sense managerial economics is also understood to refer to business economics or applied economics.
Thai Nguyen University (Vietnam) - Southern Luzon University (Philippines)
Assignment On
Managerial !onomi!s
Stu"ent Name# L$U T%& V'N%
(lass# ISDBA- 01
nglish name# LO
Mo"ule Tutor# Asso!) Pro*) +r) +o Anh Tai
Mo"ule Title# MANA,-'AL (ONOM'(S
+ate +ue . Su/mission +ate# Septem/er0 1231
1
Pro/lem 3# Please e4plain a/out the nature an" s!ope o* managerial
e!onomi!s5 4amples
Answer:
Managerial Economics generally refers to the integration of economic
theory with business practice. While economic provides the tool which explain
various concepts such as demand, supply, price, competition etc. Managerial
economics applies these tools to the management of business, in this sense
managerial economics is also understood to refer to business economics or
applied economics.
Managerial economics lies on the border line of management and
economics. It is a hybrid of two disciplines and it is primarily an applied branch
of knowledge. Management deals with principles which help in decision making
under uncertainty and improve effectiveness of organiation. Economics on the
other hand provides a set of propositions for optimum allocation of scare
resources to achieve the desired ob!ective
• Nature o* Managerial !onomi!s#
It is true that managerial economics aims at providing help in decision
making by firms. "or this purpose it draws heavily on the prepositions of micro
economic theory. #ote that micro economics studies the phenomenon at the
individual level and behavior of consumers, firms. $he concepts of micro
economics used fre%uently in managerial economics are elasticity, marginal cost,
managerial revenue, market structure and their significance in primary policies.
&
'ome of these concepts however provide only the logical base and have to be
modified in practice.
Micro economics assists firms in forecasting. #ote that micro economics
theory studies the economy at the aggregative level and ignores the
distinguishing features of individual observations. "or example micro
economics indicates the relationship between the
( Magnitude of Investment and )evel of #ational Income
( )evel of #ational Income and )evel of Employment
( )evel of *onsumption and #ational Income etc.
$herefore the postulates of microeconomics can be used to identify the
level of demand at some future point in time, based on the relationship between
the level of national income and demand for electric motors. +lso the demand
for durable goods such as refrigerators, air(conditioners, motor cars depends
upon the level of national income.
Managerial economics is decidedly applied branch of knowledge.
$herefore the emphasis is laid on those prepositions which are likely to be
useful to the management. $he precision of a scientist is not motivating factor in
research activity. Improvement in the %uality of results is attempted, provided
the additional cost is not very high and the decision maker can wait. "or
example it may be possible to have more accurate data on demand for the firm,s
product by taking into consideration, additional factors. -ut this may not be the
attempted because the decision has to be made without delay. -eside, more
accurate forecasts may not be !ustified on cost considerations.
.
Management economics is perspective in nature and character. It
recommends that it should be done alternate conditions. "or example if the price
of the synthetic yarn falls by /01 it may be desirable to increase its use in
producing different types of textiles. $hus managerial economics is one of the
normative sciences and reflects upon the desirability or otherwise of the
prepositions. "or example if the analysis suggests that the benefit(cost ratio is
used as the criterion for pro!ect appraisal it is recommended that the firm should
not install a large plant. *ontract this with the positive sciences which state the
prepositions without connecting upon what should be done. "or example if the
distribution of income has become more uneven it is stated without indicating
what should be done to correct this phenomenon.
Managerial economics to the extent that it is uses economic thought is a
science, but it is an applied science. Economic thought uses deductive logic 2if
3 is true, then 4 is true5. "or example if the triangles ate congruent then angles
are e%ual. $o have confidence in the findings, the prepositions deducted are
sub!ect empirical verification. "or example empirical studies try to verify
whether cost curves faced by a firm are really 6 shaped as suggested by the
theory. "urthermore there is an attempt to generalie the prepositions which
provide a predictive character. "or example empirical studies may suggest that
every 11 rise in expenditure on advertising, the demand for the product shall
increase by /1.
7
Managerial economics uses scientific approach. In practice, some firms
may use simple rules based on past experience. 8owever the %uality of decisions
made can be improved using a systematic approach.
• S!ope o* Managerial !onomi!s#
'cope means province or an area of study. $here is hardly any uniform
pattern as regards the scope of managerial economics as it is comparatively a
new sub!ect. 8owever, the scope of managerial economics may be discussed
under following points.
9 Whether managerial economics is normative or positive economics:
Economics is divided in to positive economics and normative economics.
;ositive economics is that branch of economics which studies the things as they
are. #ormative economics deals with the things they ought to be or should be.
;ositive economics is descriptive in nature where as normative economics is
prescriptive in nature. Managerial economics is considered to be the part of
normative economics. It lays more emphasis on prescribing choice and action
and less on explaining what happened. Managerial economics draws descriptive
economics and tries to pass !udgments to value in the context of time.
9 Area of Study: -roadly speaking managerial economics deals with the
following topics:
( <emand +nalysis and "orecasting: Effective decision making at the firm
level depends on accurate estimates of demand. <emand analysis aims at
discovering the forces that determine sales. $he demand analysis mainly relates
/
to the study of demand, determinants, demand distinctions and demand
forecasting.
( *ost and ;roduction +nalysis: *ost estimates are also essential for
effective decision making and production planning at the firm level. ;rofit
planning, cost control and sound pricing practices call for accurate cost and
production analysis. *ost relations are production function and cost control.
( ;ricing <ecisions, ;olicies and ;ractices: ;ricing is an important area of
managerial economics. 'uccess of a business firm largely depends on the
accuracy of price decisions. ;rice determinations under different markets,
pricing methods policies, product line pricing and price forecasting are some of
the topics of this area.
( ;rofit Management: -usiness firms are mainly profit hunting
institutions. $he success of the firm is always measured in terms of profits.
#ature and management of profit, profit policies and techni%ues and profit
planning are the important aspects covered in this area.
( *apital Management: $he most complex, troublesome problem faced by
the business manager is the capital management. *apital management implies
planning and control of capital expenditure. *ost of capital rate of return and
selection of pro!ects are the important points under this.
( )inear ;rogramming and $heory of =ames: 'ince managerial
economics and operations research are closely connected with each other,
managerial economics has started using such techni%ues of operations research
as linear programming and the theory of games. >ecently the linear
?
programming and the theory of games have been brought as part of managerial
economics.
( ;rofits @ a central point in managerial economics: ;rofit in other words
is the central concept of managerial economics. Without profits business firms
can not run. $he maximiation of profits is the main ob!ective of any firm or a
business unit. $he survival of the firm is determined by the ability of a firm to
earn profits. ;rofit is the main indicator of firm,s success.
( Aptimiation: Aptimiation is another important concept used in
economic theory and managerial economics. Managerial economics often aims
at optimiing a given ob!ective. In recent years, a new concept was found out
called B'ub(AptimiationC. $he greatest merit of this concept is its flexibility.
Pro/lem 1# Sele!t one o* them to "is!uss
1. +ccording to the record data of the production department draw the
total output curve as follow:
$he current level of labor employed is at )1 and the head of the
department suggests that should not employ more labor than that level.
Explain why and what his suggestion will base onD
E
Autput
)abour
)1
Answer:
$he suggestion of the head of the production department is a decision in
the short run.
F In the short run, capital is fixed
F Anly changes in the variable labor input can change the level of output
F 'hort run production function: G H f2),I5 H f2)5
$he production function consists of two elements of )abor 2)5 and capital
2I5. In the short run, the capital is fixed, unchanging, or I is a constant. 'o ) is
the only variable of the production function in the short run, therefore, G H f 2)5.
F Average product of labor : AP = Q/L
F Marginal product of labor: MP = ?Q/?L
F When AP is rising MP is greater than AP
F When AP is falling MP is less than AP
F When AP reaches it ma!imum AP = MP
+ccording to the La" of diminishing marginal product: +s usage of a
variable input increases, a point is reached beyond which its marginal product
decreases.
8ere, the head of the production department is interested in & problems:
F #echnical efficiency# +chieved when maximum amount of output is
produced with a given combination of inputs.
F $conomic efficiency# +chieved when firm is producing a given output at
the lowest possible total cost.
J
We can see in the following panels:
'pecifically, the head of the production department is interested in the
average labor productivity or average product per one labor 2+;5. $he head of
the department need to increase the number of labor to a certain level, at which
the +; greatest or +; is maximum. $his is achieved when: +; H M;.
$hus, at the panel +, we can see )1 is the level of labor employed, at
which the average product per one labor 2+;5 e%uals the marginal product of
labor 2M;5: +; H M;. +nd when exceeds )1 level, as the usage of one labor
rises, the added output eventually diminished.
'o, the head of the production department based on the )aw of
<iminishing marginal product and saw that +; H M; at the )1 level and this is
K
the best level of labor employed. 'o he suggested that should not employ more
labor than )1 level.
10
-e*eren!es
1. +sso. ;rof. <o +nh $ai ;h<, &01&. Managerial Economics, )ecture #otes.
&.http:LLwww.scribd.comLdocL&&?.0&1&L#ature(and('cope(of(Managerial(
Economics(#otes
..http:LLwww.scribd.comLdocL.E0J&J7EL#ature(and('cope(of(Managerial(
Economics(M-'("irst(4ear
11
doc_561263462.doc