organizations do. This book presents economic concepts and principles from the perspective of “managerial economics,” which is a subfield of economics that. PDF | Managerial Economics: Concepts and Tools is intended as a textbook for Managerial Economics courses in Business and Management. This book is printed on acid-free paper. International Standard Book Number: 0 Descriptive Versus Prescriptive Managerial Economics 8.
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of the front cover. New Topics. At one time, managerial economics books most closely resembled intermedi- ate microeconomics texts with topics reworked here . Available in PDF, ePub and Kindle. Managerial Economics or Business Economics subject is covered in simple explanation by this book and requires special. This textbook covers all the main aspects of managerial economics: the . As managerial economics has increased in importance, so books on.
A problem is the difference between a desired situation and the actual situation. Diagnose the situation. In the following we shall be discussing the decision making process of the management and how managerial economics and its various tools and techniques help a manager in this process. As decision making is a basic function of manager. Labor hiring and firing 6.
Decisions are classified based on three systems.
The adoption of strategies. Production Technique 3. Stock Levels 4. Product Price and Output 2.
Organizational and personal decisions Organizational decisions are those executives make in their official role as managers. Select the approach that appears most likely to solve the problem 7. Advertising Media and intensity 5. Such decisions are often delegated to others. Such decisions are not delegated to others because their implementation does not require the support of organizational personnel.
Implement it. Deciding to retire. They involve long-range commitments. For this reason. The value of viewing decision making in this manner is that it permits a clearer understanding of the methods that accompany each type. Non programmed decisions are similar to the category of basic decisions. Since some individuals in the organization spend most of their time making routine decisions. Selection of a product line.
Most business situations however are characterized by incomplete or ambiguous information. Routine decisions are often repetitive in nature. Programmed decisions correspond roughly to the routine decisions. There are three conditions that affect decision making: The alternative that has the highest probability of success.
In a state of uncertainty. Under a state of risk. Also called the rational model. Certainty is the condition that exists when decision makers are fully informed about a problem its alternative solutions.
The classical model is characterized by the following assumptions: He or she can then choose. Under this condition. RISK In the context of decision making.
The Administrative Model Bounded rationality means that people have limits.
These limits exist because people are bound by their own values and skills. Also called the organizational. Assumptions in Administrative model The Administrative model of decision making also have some basic assumptions: Because managers often lack the time of ability to process complete information about complex decisions.
Simon who recognized that people do not always make decisions with logic and rationality. For this a firm needs to analyze the assets as well as liabilities. The manager can use the concept to answer questions such as how much more output will result if one more worker is hired? The answer often called marginal physical product.
There are two types of costs that merit the manager's consideration: The Ordering cost and Carrying costs. Unlike in brainstorming and nominal groups. It is a technique that systematizes for certain conditions the process of selecting the most desirable course of action from a number of available courses of action.
While the group members are all physically present. It has been described as a technique for specifying how to use limited resources or capacities of a business to obtain a particular objective.
Its primary purpose is to generate a multitude of creative alternatives. Delphi group participants never meet face to face. On the one hand. Market demand is a multivariate relationship and determined by many factors simultaneously. Some of the most important determinants of the market demand for a particular commodity are its own price. Government policy. On the other hand market demand of a commodity is the summation of individual demand by all the consumers.
The desire without adequate purchasing power and willingness to pay do not become effective demand and only an effective demand matters in economic analysis and business decisions. Such goods can be used repeatedly over a period of time. Their demand is of two types. A small change in the demand for consumer goods The demand for nondurable goods depends largely on their prices. Perishable non-durable goods are defined as those which can be used only once. Replacement of old products and expansion of existing stock.
On the other hand if the demand for a product is tied to the demand for some parent product. Commodities like tea and vegetables do come on absolute terms. Producer's goods on the other hand are used for the production of consumer goods or they are intermediate goods. The demand for durable goods changes over a relatively longer period. Durable goods may be consumer goods as well as producer goods. It may also be possible that this demand may be accelerated or accentuated in the same proportion as the change in the demand for the final consumer goods.
These structures can be differentiated the basis of product differentiation and number of sellers. A Clear understanding of the relation between company and industry demand necessitates the understanding of different market structures. A typical demand function can be specified as follows: The linear demand curve may be written in the form of.. A demand curve is said to be linear when its slope is constant all along the curve.
The most important types of elasticity are: This is called Change in Quantity Demanded. On the other hand Shift in the demand curve either upward or downward is in response to a change in one of the other determinants of demand.
The point elasticity of demand is defined as the proportionate change in the quantity demanded resulting from a very small proportionate change in price. For very small changes in price point elasticity of demand is used as a measure of responsiveness of demand and arc elasticity of demand is the suitable measure for comparatively large changes in price.
The income elasticity is positive for normal goods.
The sign of cross elasticity is negative if x and y are complementary goods and positive if x and y are substitutes. The higher the value of the cross elasticity the stronger will be the degree of substitutability or complementarity of x and y. It suffices for the consumer to be able to rank the various baskets of goods according to the satisfaction derived. This is the axiom of utility maximization. Given his income and the market prices of the various commodities.
The main ordinal theory is known as the indifference-curve theory is based on certain assumptions. Under these conditions the consumer is in equilibrium when the marginal utility of x is equated to its market price.
There are two basic approaches to compare the utilities. Under certainty i. There are certain assumptions of cardinal utility theory. Two conditions must be fulfilled for the consumer to be in equilibrium.
This condition is fulfilled by the axiom of diminishing marginal rate of substitution of x for y and vice versa. It is also called alternative cost. The explicit and implicit costs together make the economic cost. A sunk cost is an expenditure that has been made and cannot be recovered since it accord to the prior commitment. On the other hand actual Cost considers only explicit cost. Incremental cost is the change in cost tied to a managerial decision associated with expansion of output or addition of new variety of product.
Opportunity cost is an important example of implicit cost. The cost of production is an important factor in almost all the business analysis and decisions. The cost concepts can be grouped under two categories on the basis of their nature and purpose. In contrast implicit costs are non-cash expenses. The concept of economic rent or economic profit is associated with it. Average and Marginal Costs Total Cost Total cost is the total expenditure incurred on the production.
It connotes both explicit and implicit money expenditure and include fixed and variable costs. Variable costs are those which vary with the variation in the total output. Fixed costs are associated with the short run. It include cost of raw material. The fixed costs include the cost of managerial and administrative staff. It does not vary with variation in the output for a certain scale.
Average cost Average cost is obtained by dividing the total cost by the total output. Average cost curves Marginal Cost Marginal cost is the change in the total cost for producing an extra unit of output.
Demand forecast is a must for a firm operating its business as today's market is competitive. Long run forecasts are helpful in proper capital planning.
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Enter here no purchase necessary. Join Now Login. Click to Preview. Srinivas R. Rao Downloads: Book Description HTML Managerial Economics or Business Economics subject is covered in simple explanation by this book and requires special attention as it is a basic and fundamental subject for the entire understanding of Business Management and Financial subjects.