The relevance of Managerial Economics in decision making process in modern management can be explained with the help of fundamental concepts, content and context. The different areas of managerial economics highlighting their effectiveness in the decision making process. The important areas of managerial economics are divided into 2 parts -
(1) Microeconomics
(2) Macroeconomics
In microeconomics the manager is studying the individual problem in detail and on the basis of this study certain decisions are taken into account. On the other hand, in the case of macroeconomics the manager is studying the aggregate problem in detail and on the basis of such study certain decisions are arrived which are being applied in the decision making process.
DIFFERENT AREAS OF MICROECONOMICS:
1. The study of consumer behavior - The consumer is the important agent in managerial economics. The fundamental objective of the consumer is Utility Maximization . Utility is the satisfaction which the consumer is getting from the consumption of a particular goods or service in the market. We have 2 approaches to study the consumer behavior - (i) cardinal approach by Marshall and (ii) ordinal approach initially developed by Hicks and subsequently supported by Pareto.
Cardinal approach is based on the hypothesis that utility can be measured exactly in terms of money or price paid by the consumer in market and hence utility is a measurable concept.
On the other hand ordinal approach states that utility can't be a measurable concept, as it is a matter of order. Therefore according to this approach the consumer can express that he/she is interested to pay more price for product X in comparison to the product Y in market because he/she is getting more satisfaction from the consumption of product X in comparison to product Y.
The major contributions of the cardinal approach of consumer behavior are -
(a) Principle of Diminishing Marginal Utility which is popularly known as Marginal Utility Analysis and this principle is accepted as the basis of Demand Analysis or Quantitative Demand Analysis.
(b) Law of Demand, factors of Law of Demand, exceptions of Law of Demand and these are known as Demand Analysis or Quantitative Demand Analysis.
(c) Concept of elasticity of demand and measurement of different types of elasticity of demand, i.e., price elasticity of demand, income elasticity of demand, cross elasticity of demand, point elasticity of demand and arc elasticity of demand. Each type of elasticity of demand is identifying the nature of responsiveness of change in price parameter or income parameter or price of the substitute product parameters.
(d) The concept of demand forecasting, different techniques of demand forecasting and the significance of each type of demand forecasting in managerial economics.
Different Contributions of Ordinal Approach of Consumer Behavior -
(a) The concept of indifference curve based on indifference schedule reflecting that consumers are getting more or less the same total satisfaction from a particular combination of consumption and these combinations are reflected in the indifference schedule.
(b) Fundamental properties of indifference curve and theis applicability.
(c) Fundamental properties of indifference map.
(d) Concept of consumer's equilibrium with the help of indifference curve technique.
2. The study of producer behavior - The producer is another important agent in managerial economics. The objective of producer is the profit maximization.
Profit is the difference between total revenue and total cost.
Total Revenue = (Total Output) X (Per Unit Price Of The Product)
Total Cost = (Total Output) X (Per Unit Cost In Production)
The important contributions in the study of the producer behavior are -
(a) The law of supply which is known as Supply Analysis or The theory of supply. It can explained with the help of suppl;y function, supply schedule and supply curve.
(b) The concept of elasticity of supply with the help of different types of supply curves.
(c) Behavior of different types of return to scale which is known as different laws of return popular;y known as Return Analysis.
(d) Different concepts of revenue in different market structures which is known as Revenue Analysis.
(e) Nature and behavior of different cost of production.
(f) Concept, techniques and significance of different techniques of cost forecasting.
(g) Concept, types and significance of each type of production function.
3. The study of market behavior - In this area of microeconomics following contributions are considered :
(a) Different elements of market.
(b) Features/Conditions of different types of market on the basis of different criteria of classification. In the classification we get the features of local market, national market, international market, very short run market, long run market, perfect competition, monopoly, discriminating monopoly, duo monopoly, oligopoly and features of monopolistic competition.
(c) Conditions of equilibrium of firm and industry in short run and long run under perfect competition, monopoly, discriminating monopoly, duopoly and oligopoly and monopolistic competition.
It is known that imperfect competition is consisting of monopoly, discriminating monopoly, duopoly, oligopoly. Therefore this analysis will highlight Price and Output determination by the firm and industry under perfect competition, imperfect competition and monopolistic competition in short run and long run.
DIFFERENT AREAS OF MACROECONOMICS:
1. The study of business cycle - This area is also known as Study of Trade Cycle. In this area we identify the behavior of different phases of business cycle with the help of diagram and implication of each phase of business cycle in managerial economics. The different causes of business cycle are identified with the help of different theories business cycle. Finally the steps to control the cyclical fluctuations in business activity are identified in order to minimize the adverse effect of certain phases of business cycle.
2. The study of National Income Measurement - In this area of macroeconomics national income is defined and different techniques of national income measurement are identified. Different concepts of national income are generated from national income measurement. finally the major problem in the national income measurement in the context of developing country like India are identified.
The significance of per capita income are explained in the context of developing country like India.
3. The Study of Income Determination - In this area of macroeconomics the different theories of income determination are explained i detail.The basic distinction between a classical theory of income determination and ancient theory of income determination are identified.
The relevance of saving-investment analysis in the context of the macro-economics is explained in details in order to identify the applicability of the concept of equality between saving and investment in macro-economics and finally it is pointed out that the trend of economic growth is ultimately dependent on the movement of saving and investment parameters.
(1) Microeconomics
(2) Macroeconomics
In microeconomics the manager is studying the individual problem in detail and on the basis of this study certain decisions are taken into account. On the other hand, in the case of macroeconomics the manager is studying the aggregate problem in detail and on the basis of such study certain decisions are arrived which are being applied in the decision making process.
DIFFERENT AREAS OF MICROECONOMICS:
1. The study of consumer behavior - The consumer is the important agent in managerial economics. The fundamental objective of the consumer is Utility Maximization . Utility is the satisfaction which the consumer is getting from the consumption of a particular goods or service in the market. We have 2 approaches to study the consumer behavior - (i) cardinal approach by Marshall and (ii) ordinal approach initially developed by Hicks and subsequently supported by Pareto.
Cardinal approach is based on the hypothesis that utility can be measured exactly in terms of money or price paid by the consumer in market and hence utility is a measurable concept.
On the other hand ordinal approach states that utility can't be a measurable concept, as it is a matter of order. Therefore according to this approach the consumer can express that he/she is interested to pay more price for product X in comparison to the product Y in market because he/she is getting more satisfaction from the consumption of product X in comparison to product Y.
The major contributions of the cardinal approach of consumer behavior are -
(a) Principle of Diminishing Marginal Utility which is popularly known as Marginal Utility Analysis and this principle is accepted as the basis of Demand Analysis or Quantitative Demand Analysis.
(b) Law of Demand, factors of Law of Demand, exceptions of Law of Demand and these are known as Demand Analysis or Quantitative Demand Analysis.
(c) Concept of elasticity of demand and measurement of different types of elasticity of demand, i.e., price elasticity of demand, income elasticity of demand, cross elasticity of demand, point elasticity of demand and arc elasticity of demand. Each type of elasticity of demand is identifying the nature of responsiveness of change in price parameter or income parameter or price of the substitute product parameters.
(d) The concept of demand forecasting, different techniques of demand forecasting and the significance of each type of demand forecasting in managerial economics.
Different Contributions of Ordinal Approach of Consumer Behavior -
(a) The concept of indifference curve based on indifference schedule reflecting that consumers are getting more or less the same total satisfaction from a particular combination of consumption and these combinations are reflected in the indifference schedule.
(b) Fundamental properties of indifference curve and theis applicability.
(c) Fundamental properties of indifference map.
(d) Concept of consumer's equilibrium with the help of indifference curve technique.
2. The study of producer behavior - The producer is another important agent in managerial economics. The objective of producer is the profit maximization.
Profit is the difference between total revenue and total cost.
Total Revenue = (Total Output) X (Per Unit Price Of The Product)
Total Cost = (Total Output) X (Per Unit Cost In Production)
The important contributions in the study of the producer behavior are -
(a) The law of supply which is known as Supply Analysis or The theory of supply. It can explained with the help of suppl;y function, supply schedule and supply curve.
(b) The concept of elasticity of supply with the help of different types of supply curves.
(c) Behavior of different types of return to scale which is known as different laws of return popular;y known as Return Analysis.
(d) Different concepts of revenue in different market structures which is known as Revenue Analysis.
(e) Nature and behavior of different cost of production.
(f) Concept, techniques and significance of different techniques of cost forecasting.
(g) Concept, types and significance of each type of production function.
3. The study of market behavior - In this area of microeconomics following contributions are considered :
(a) Different elements of market.
(b) Features/Conditions of different types of market on the basis of different criteria of classification. In the classification we get the features of local market, national market, international market, very short run market, long run market, perfect competition, monopoly, discriminating monopoly, duo monopoly, oligopoly and features of monopolistic competition.
(c) Conditions of equilibrium of firm and industry in short run and long run under perfect competition, monopoly, discriminating monopoly, duopoly and oligopoly and monopolistic competition.
It is known that imperfect competition is consisting of monopoly, discriminating monopoly, duopoly, oligopoly. Therefore this analysis will highlight Price and Output determination by the firm and industry under perfect competition, imperfect competition and monopolistic competition in short run and long run.
DIFFERENT AREAS OF MACROECONOMICS:
1. The study of business cycle - This area is also known as Study of Trade Cycle. In this area we identify the behavior of different phases of business cycle with the help of diagram and implication of each phase of business cycle in managerial economics. The different causes of business cycle are identified with the help of different theories business cycle. Finally the steps to control the cyclical fluctuations in business activity are identified in order to minimize the adverse effect of certain phases of business cycle.
2. The study of National Income Measurement - In this area of macroeconomics national income is defined and different techniques of national income measurement are identified. Different concepts of national income are generated from national income measurement. finally the major problem in the national income measurement in the context of developing country like India are identified.
The significance of per capita income are explained in the context of developing country like India.
3. The Study of Income Determination - In this area of macroeconomics the different theories of income determination are explained i detail.The basic distinction between a classical theory of income determination and ancient theory of income determination are identified.
The relevance of saving-investment analysis in the context of the macro-economics is explained in details in order to identify the applicability of the concept of equality between saving and investment in macro-economics and finally it is pointed out that the trend of economic growth is ultimately dependent on the movement of saving and investment parameters.