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Part A Firm and Market for Managerial Economics Mcom Delhi University

Part A Firm and Market for Managerial Economics Mcom Delhi University

Part A Firm and Market for Managerial Economics Mcom Delhi University :

Description: The Department runs the prime course of Master of Commerce for which the department was established in 1967. This is one of the prestigious courses in the country. The Alumni of this course are well placed in business, academics and administration in the country and abroad. The programme is well received in the industry and for years had been serving the needs of managerial cadre in business and industry. The course serves the needs of academics as well and prepares students for research and teaching in business studies teaching for M.Com taught at the Department of Commerce, Faculty of Commerce & Business, Delhi School of Economics, University of Delhi, Delhi-110007

Part A Firm and Market for Managerial Economics Mcom Delhi University

Managerial Economics – Overview

A close interrelationship between management and economics had led to the development of managerial economics. Economic analysis is required for various concepts such as demand, profit, cost, and competition. In this way, managerial economics is considered as economics applied to “problems of choice’’ or alternatives and allocation of scarce resources by the firms.

Managerial economics is a discipline that combines economic theory with managerial practice. It helps in covering the gap between the problems of logic and the problems of policy. The subject offers powerful tools and techniques for managerial policy making.

Part A Firm and Market for Managerial Economics Mcom Delhi University

Managerial Economics − Definition

To quote Mansfield, “Managerial economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.

Spencer and Siegelman have defined the subject as “the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.”

Part A Firm and Market for Managerial Economics Mcom Delhi Univers


Strategy in the absence of market power ◮ Firms cannot influence price and, because products are not unique, they cannot influence demand by advertising or product differentiation. ◮ Managers in this environment maximize profit by minimizing cost, through the efficient use of resources, and by determining the quantity to produce.


Perfect competition: When there are many firms that are small relative to the entire market and produce similar products

◮ Firms are price takers.

◮ Products are standardized (identical).

◮ There are no barriers to entry.

◮ There is no nonprice competition.


Imperfect competition

◮ Firms have some degree of market power and can determine prices strategically.

◮ Products may not be standardized.

◮ Firms employ nonprice competition.

  • Product differentiation
  • Advertising
  • Branding
  • Public relations

Part A Firm and Market for Managerial Economics Mcom Delhi University

Micro, Macro, and Managerial Economics Relationship

Microeconomics studies the actions of individual consumers and firms; managerial economics is an applied specialty of this branch. Macroeconomics deals with the performance, structure, and behavior of an economy as a whole. Managerial economics applies microeconomic theories and techniques to management decisions. It is more limited in scope as compared to microeconomics. Macroeconomists study aggregate indicators such as GDP, unemployment rates to understand the functions of the whole economy.

Microeconomics and managerial economics both encourage the use of quantitative methods to analyze economic data. Businesses have finite human and financial resources; managerial economic principles can aid management decisions in allocating these resources efficiently. Macroeconomics models and their estimates are used by the government to assist in the development of economic policy.

Nature and Scope of Managerial Economics

The most important function in managerial economics is decision-making. It involves the complete course of selecting the most suitable action from two or more alternatives. The primary function is to make the most profitable use of resources which are limited such as labor, capital, land etc. A manager is very careful while taking decisions as the future is uncertain; he ensures that the best possible plans are made in the most effective manner to achieve the desired objective which is profit maximization.

  • Economic theory and economic analysis are used to solve the problems of managerial economics.
  • Economics basically comprises of two main divisions namely Micro economics and Macro economics.

Micro and Macro Economics

  • Managerial economics covers both macroeconomics as well as microeconomics, as both are equally important for decision making and business analysis.
  • Macroeconomics deals with the study of entire economy. It considers all the factors such as government policies, business cycles, national income, etc.
  • Microeconomics includes the analysis of small individual units of economy such as individual firms, individual industry, or a single individual consumer.

All the economic theories, tools, and concepts are covered under the scope of managerial economics to analyze the business environment. The scope of managerial economics is a continual process, as it is a developing science. Demand analysis and forecasting, profit management, and capital management are also considered under the scope of managerial economics.

Part A Firm and Market for Managerial Economics Mcom Delhi University

Nature Of The Firm A firm is an association of individuals who have organized themselves for the purpose of turning inputs into output. The firm organizes the factors of production to produce goods and services to fulfill the needs of the households. Each firm lays down its own objectives which is fundamental to the existence of a firm. The major objectives of the firm are: Ֆ To achieve the Organizational Goal Ֆ To maximize the Output Ֆ To maximize the Sales Ֆ To maximize the Profit of the Organization Ֆ To maximize the Customer and Stakeholders Satisfaction Ֆ To maximize Shareholder’s Return on Investment Ֆ To maximize the Growth of the Organization Firms are established to earn profit, to keep the shareholders happy. To increase their market share, they try to maximize their sales. In the present business world firms try to produce goods and services without harming the environment. Firms are not always able to operate at a profit. They may be facing the operating loss also. Economists believe that firms maximize their long run rather than their short run profit. So managers have to make enough profit to satisfy the demands of their shareholders and to maximize their wealth through the company.

Part A Firm and Market for Managerial Economics Mcom Delhi University

Nature of Managerial Economics:It is true that managerial economics aims at providing help in decision making by firms.For this purpose it draws heavily on the prepositions of micro economic theory. Note that micro economics studies the phenomenon at the individuals level and behavior of consumers, firms. The concepts of micro economics used frequently in managerial economics are elasticity, marginal cost, managerial revenue, market structure and their significance in primary policies. Some of these concepts however provide only the logical base and have to be modified in practice.Micro economics assists firms in forecasting. Note that micro economics theory studies the economy at the aggregative level and ignores the distinguishing features of individual observations. For example micro economics indicates the relationship between the
  • Magnitude of Investment and Level of National Income
  • Level of National Income and Level of Employment
  • Level of Consumption and National Income etc.

Part A Firm and Market for Managerial Economics Mcom Delhi University

Recommended Mcom Notes

M. Com. (Part-I)

M. Com. (Part-II)

Part A Firm and Market for Managerial Economics Mcom Delhi University

Part A Firm and Market for Managerial Economics Mcom Delhi University

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