Mr. Pankaj Mahajan

Artha – Money/Income

Shasthra – Body of Knowledge

Economics – Body of knowledge which deals with the management of money

According to Milton H Spencer and Louis Siegelman “Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management.

Economic Theory and Methodology

Business Management Decision Problems

Business EconomicsApplication of Economics to solve business problems

Optimal solutions to business problems

Micro in nature- concerned with the study of the problems of the firm.

Pragmatic in nature- aims at solutions to problems considering the environment in which the business operates.

Prescriptive in nature rather than descriptive- aims at prescribing solutions to business problems rather than describing theories.

Uses Macro-Economics too – enables an executive to understand the business environment nd adjust with the uncontrollable external factors

1) Demand Analysis and Forecasting: - Forecasting future sales of products and

services. - Identify demand determinants - guidelines to manipulate demand

2) Cost Analysis: - Discovering and measuring them for

effective profit planning and cost control - covers cost-output relationships,

economies and diseconomies of scale, cost control and cost reduction

3) Production and Supply Analysis: - deals with planning production and its

managerial uses - supply analysis deals with various

aspects of supply of a commodity - maximize firm’s revenue through proper

planning of production and supply.

4) Pricing decisions, policies and practices: - correct pricing decisions form the

backbone of success of the firm - covers price determination in various

market conditions, pricing methods and price forecasting.

5) Profit Management: - high level of uncertainty in variation of

costs caused by sudden change in the internal and external factors

- ME helps in estimating considerably such uncertainties by manipulating costs

- covers break even analysis, measurement of profit, profit policies and techniques etc

6) Capital Management: - most complex decisions of business

often revolve around planning and allocation of capital

- decisions irreversible in nature - ME helps in planning and control of

capital expenditure. - covers cost of capital, rate of return and

selection of projects