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EHU-501 : Engineering & Managerial
Economics
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Syllabus:
Unit-I
Introduction : Meaning, Nature and Scope of
Economics, Meaning of Science, Engineering and
Technology. Managerial Economics and its scope in
engineering perspective.
Unit-II
Basic Concepts
Demand Analysis, Law of Demand, Determinates
of Demand, Elasticity of Demand-Price, Income
and cross Elasticity. Uses of concept of elasticity of
demand in managerial decision. 2
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Unit-III
Demand forecasting
Meaning, significance and methods of
demand forecasting, production function,
Laws of returns to scale & Law of Diminishing
returns scale. An overview of Short and Long
run cost curves fixed cost, variable cost,
average cost, marginal cost, Opportunity cost.
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Unit-IV
Market Structure
Perfect Competition, Imperfect competition Monopolistic,Oligopoly, duopoly sorbent features of price determination and
various market conditions.
Unit-V
National Income, Inflation and Business Cycles
Concept of N.I. and Measurement. Meaning of Inflation, Typecauses & prevention methods, Phases of business cycle.
Reference Books
Managerial Economics : M. L. Jhingan
Managerial Economics for Engineering : Prof. D.N. Kakkar
Managerial Economics : D.N. Dwivedi
Managerial Economics : Maheshwari.
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Introduction
The word Economics is derived fromthe Greek word OKIOS NEMEINmeaning household management
Man is a bundle of desires. Goods
and services satisfy these wants. Butalmost all the goods are scares.
To produce goods factors of
production are needed and these arealso scarce.
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The Study of Economics
Economicsis the study of howindividuals and societies choose to use
the scarce resources that nature and
previous generations have provided. It is the study of economic problems.
Wants are motive for economic
activity. Wants leads to efforts andwhich lead to satisfaction
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Economic Definitions
Adam Smith gave the WealthDefinition
Alfred Marshall gave the WelfareDefinition
Lionel Ribbons gave the ScarcityDefinition Paul Samuelson gave the GrowthDefinition
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Why Engineers need to study Managerial economics :
Natural resources (from which we must build things) are becoming
more scarce and more expensive. We are much more aware ofnegative side-effects of engineering innovations (such as air pollutionfrom automobiles) than ever before.
For these reasons, engineers are tasked more and more to place theirproject ideas within the larger framework of the environment within
a specific planet, country, or region.
Engineers must ask themselves if a particular project will offer somenet benefit to the people who will be affected by the project, afterconsidering its inherent benefits, plus any negative side-effects
(externalities), plus the cost of consuming natural resources, both inthe price that must be paid for them and the realization that oncethey are used for that project, they will no longer be available for anyother project(s).
Simply put, engineers must decide if the benefits of a project exceed
its costs or not.
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Who is a Manager ?
A manager is a simple lay man person who managesthings around.
A manager has to manage :
Ideas ( i.e., objectives, plans and policies )
Things (i.e., capital, machinery, materials and otherphysical resources) ;
People (i.e., human resources) .
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Questions that managers must answer :
Objectives of a firm? Economic Objectives (profit maximisation, sales
maximisation, Techniques of production, market share, etc.) Non Economic Objectives (a good place for the employees
to work, provide good products and better services to thecustomers, act as a good citizen .
What to produce? (demand analysis and forecasting)
Make or buy?
How to produce? (production technology).
Cost of producing commodity?
Price and quantity of output to be produced? Profit?
Investment?
Product policy, sales promotion and market strategy?
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DEFINITIONS OF MANAGERIAL ECONOMICS
McGuigan and Moyer: Managerial economics is the
application of economic theory and methodology todecision-making problems faced by both public and
private institutions.
McNair and Meriam: Managerial economics consists
of the use of economic modes of thought to analyse
business situations.
Spencer and Siegelman: Managerial economics is the
integration of economic theory with business practice
for the purpose of facilitating decision-making and
forward planning by management.
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The Method of Economics
Positive economicsstudies economic behavior
without making judgments. It describes what exists
and how it works.
Normative economics, also called policy economics,analyzes outcomes of economic behavior, evaluates
them as good or bad, and may prescribe courses of
action.
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CHARACTERISTICS OF MANAGERIAL ECONOMICS
1. Microeconomic in nature: It studies the problems andprinciples of an individual business firm or an individual
industry.2. Normative economics: It is concerned with varied
corrective measures that a management undertakes undervarious circumstances.
3. Future planning, policy-making, decision-making and
optimal utilisation of available resources, come under thebanner of managerial economics.
4. Pragmatic:
5. Uses theory of firm: Managerial economics employseconomic concepts and principles, which are known as the
theory of Firm or 'Economics of the Firm'.6. Takes the help of macroeconomics:
7. Aims at helping the management: Managerial economicsaims at supporting the management in taking correctivedecisions and charting plans and policies for future.
8. A scientific art:Science is a system of rules and principles .
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The scope of Managerial Economics
Economics is grouped under two broad categories:
Microeconomicsis the branch of economics thatexamines the functioning of individual industries and thebehavior of individual decision-making unitsthat is,business firms and households.
Macroeconomicsis the branch of economics thatexamines the economic behavior of aggregatesincome, output, employment, and so onon a nationalscale. Ex: Total production, total consumption, totalsavings and total investment.
The areas of business issues to which economictheories can be directly applied may be divided into twocategories :
Operational or internal issues. Environmental or external issues.
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The following are the fields covered byMacroeconomics:1. Theory of National Income, Output and Employment
with its two constituents, namely, the theory ofconsumption function, the theory of investmentfunction .
2. Theory of general Price level with its constituents ofthe theories of inflation, deflation .
3. Theory of Economic Growth dealing with the long-run
growth of income, output and employment.
The following are the fields covered byMicroeconomics:
1. Theory of Product pricing (Theory of Demand & Theoryof production and Cost)
2. Theory of Factor pricing. (Theory of Distribution-Wages, Rent, Interest, profits)
3. Theory of Economic Welfare.
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SCOPE OF MANAGERIAL ECONOMICS:
1. Theory of demand Demand Analysis
Demand Theory (Consumer Behaviour) 2. Theory of production
Variable factor
Fixed Factor
3. Theory of exchange or price theory
4. Theory of profit Demand of the product
Prices of the factors of production
Nature and degree of competition in the market
Price behaviour under changing conditions 5. Theory of capital and investment
Selection of a investment project
Efficient allocation of capital
Assessment of the efficiency of capital
Minimising the possibility of under capitalisation orovercapitalisation.
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Environmental issues
The type of economic system of the country
Social factors like value system of the society Political system of the country Business cycles Monetary and fiscal policy of the country
General trends in : economy concerning the production, employment,
income, prices, saving and investment etc. The working of financial institutions in the country
Foreign trade of the country
General attitude and significance of socialorganisations like trade unions, producers unionsand consumers cooperative societies etc.
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Assisting the business planning process of the
firm
Discovering new possible fields of business
endeavor and its cost-benefit analysis
Advising on prices, investment and capital
budgeting policies
Evaluation of capital budgeting etc.22
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Role of Science ,Engineering and Technology in
Economic Development
Science is the systemized body of knowledge (containsconcepts, theories and principles which are universal
and true) pertaining to a particular field of enquiry.
Science passes through 3 stages of growth before
coming to the level of production which results ineconomic development. These stages are:
Stage 1: Formulation of the scientific principles
Stage 2: Application of the scientific principles( known
as innovation) Stage 3: Development of the innovation to the point of
commercial exploitation e. g. (development of a Solar
Cooker)
(Cont.)
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Science as the prime driver for INVENTIONS :
An invention is a scientific discovery
Process invention
Product invention
Innovation is the practical application of an
invention. Innovation causes changes in thefollowing areas:
Increasing productivity
Increasing sell
Changing the combination of factors(input)
(Land, labour , Capital)
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Technology
Technology refers to the body of knowledge ,skillsand procedures for preparing , using and doing usefulthings.
Technological development is a continuous process.
Types of technology:
1. Labour intensive technology
2. Capital intensive technology
3. Neutral Technology
4. Intermediate Technology
Technology leads to:
1. Greater output
2. Shorter working hours
3. Efficient use of Raw material
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Managerial Economist and Business Decisions
Demand Decisions /Forecasting (Consumer
behavior, Preferences, price situation, changes inemployment and BOP)
Price-Output Decisions (it decide Quantity toproduce, Cost, revenue and profit)
Production Decisions (Technology , plant size,product mix and capital mix etc.)
Investment Decisions (Production capacity
expansion , new product, new plant, Rate ofinvestment , )
Advertising Decisions
Profit Decisions
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Application of Economic Concepts,
Tools and Techniques: In applying theeconomic principle to solve the practical business
problem ,Economist has to use some basic economic
tools discussed below :
Scarcity Principle
Opportunity Cost principle Incremental Principle or marginalism
Principle of time perspective
Discounting principle
Equi Marginal principle