Managerial Economics

ECONOMICS FOR MANAGERS UNIT I Introduction: Economics can be divided into two broad categories: microeconomics and macroeconomics. Macroeconomics is the study of the economic system as a whole. It includes techniques for analysing changes in total output, total employment, the consumer price index, the unemployment rate, and exports and imports. Macroeconomics addresses questions about the effect of changes in investment, government spending, and tax policy on exports, output, employment and prices. Only aggregate levels of these variables are considered. But concealed in the aggregate data are countless changes in the output levels of individual firms, the consumption decisions of individual consumers, and prices of particular goods and services. Although macroeconomic issues and policies command much attention in the media, the microeconomics of the economy also are important and often are of more direct application to the day-to-day problems facing the manager. Microeconomics focuses on the behaviour of individual actors on the economic stage: firms and individuals and their interaction in the markets. Managerial Economics should be thought of as applied microeconomics. That is, managerial economics is an application of that part of microeconomics focusing on those topics of greatest interest and importance to managers. These topics include demand, production, cost, pricing, market structure, and government regulation. A strong grasp of the principles that govern the economic behaviour of firms and individuals is an important managerial talent. In general, managerial economics can be used by the goal oriented managers in two ways. First, given an existing economic environment, the principle of managerial economics provide a framework for evaluating whether resources are being allocated efficiently within a firm. For example, economics can help the manager determine if reallocating labour from a marketing activity to the production line could increase profit.