Managerial Econ. = MBA
OVERVIEW OF BUSINESS ENVIRONMENT
As circumstances have changed many Ideas & Activities; primitive conditions are not available. Producers should follow-up this change and new development in the market more closely.
Managers / CEO in any organizations cannot expect to succeed without understanding market forces that create opportunities and constraints of business enterprises.
Economic forces in the market will affect Demand for Product, Price of Resources and Cost of Production, Number of Rival Firms, Nature of Pricing Strategy, and Profitability of
Business.
Economics Studies How
Firms decide on commodity to produce.
The Production Technology.
Location of Firms.
Market Segmentation Strategy.
Price of Products.
WHAT IS ECONOMICS?

It is science of choice in limited resources which are put to unlimited use.

The origin can be traced to Greek Philosopher Aristotle
– confined Economics to house hold management and acquiring, guarding and make use of wealth. =>
Economics means managing house hold with limited funds.

Economics – a science of human behavior related b/n end and scarce which have alternative use. (Marshal L. Robbins) -> dedicated his definition from the ff

Unlimited Wants / End – are unlimited / unbounded human wants 2b satisfied by limited resource.
Wants = Inborn, Shaped by Custom and Conventions.

Scarcity – are resources /Time & Money/ @ disposal to satisfy unlimited human wants.

Alternative use of Scarce Resources
– resources are not only scarce they can be used in various ways /4 various scenarios/. If we choose one way we are giving up others.

The Economic Problem
– If persons want towards disposal of a resource is limited / if a person does not want to dispose / he can use it in various ways.

If one wants to use resource through grading intensity of the problems / alternatives; pricing process is mandatory. => Robin rescued economics to a theory of Pricing Process / Valuation.
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Syllabus 1

Managerial Econ. = MBA
SCARCITY AND CHOICE

Scarcity
People want to have variety Gds & Ss -> Need to produce them to satisfy want -> but resources are scarce -> limits amount that can be produced. => (Fundamental Economic
Problem)
Scarcity
– a fact that resources needed to produce goods and services are limited in supply. Limitedness has to be expressed related to human wants => imbalance between want and a means to satisfy them.

Choice
Scarce resource -> Limits Output = cannot satisfy want -> Societies have to choose type and amount to produce. b/c of scarcity we are forced to choose on the usage of resources and alternative to use them on.
Choice = Cost of sacrificing next best alternative or sacrificing to maintain more unit of a product.
Scarcity is economic analysis of a problem = resources avail to satisfy wants are limited in terms of quantity and quality = we cannot have everything we want = we must choose to the regard what to produce, how to produce and for whom to produce.
Economics has developed concepts and analytical tools to deal with the problem of allocation of scarce resources. These problems can be addressed using three ways: a) by Market
Mechanism b) By Government c) Through Combination of these approaches.
What to Produce? – is problem of deciding type and quantities of goods to be produced.
This problem arise b/c of 2 issues : Scarcity of resources not permitting to produce gds. And ss. And gds. And ss. Not valued equally in terms of utility by consumers.

The problem seeks proper allocation of resource to maximize output.
For ‘what & how to produce’ problems free enterprise system uses
Price Mechanism also
Market Research can be used as firms close to customers can understand nature and characteristics of customers which can enable to maximize their profit .
How to Produce?
– is a question of Choice of Technology.

The problem is determination of combination of Labor, Capital and other inputs used in production.
This problem arises b/c of 2 issues: Scarcity of Economic Resources /Labor, Capital/ and
Existence of alternative techniques to produce output; One can use =>

Capital -> Labor
Intensive or

Capital and

Labor => Through varying Combinations of Inputs expensive
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Managerial Econ. = MBA factor of production can be Substituted by Cheaper through which will have different impact in the cost of production .

Eg: Shoes can be produced either by hand = Cobblers -> Requires

Skilled Labor => Preferred by Poor Economy or by machines -> requires

labor and

capital. => for Rich Economy => Manufacturer must choose among inputs of production through analysis of price of resource and availability.
For Whom to Produce and Distribute? – Amount of product produced by firms will be
Total / National product of households which will be distributed based on their d/t factors:
Incomes / Wage, Rent, Interest, Profit /.

If the factors / income of potential customers are known product can be efficiently distributed. => leads to branch of economics called Welfare
Economics.
 Welfare Economics – is branch of Economics involves application of Microeconomic Techniques /Social Welfare
Function/ to rank economical feasible allocation of resources, and also measures economic efficiency and equity. => These measurements can be used to analyze demanded amount of product which can be welcomed by every income level; and then the result can answer what and how Gds and Ss are produced. ->
Competitive Advantage.

As there are various objectives Problems Seeking for a decision are also different among individuals and organizations but
Optimal Decision is all about Considering Objectives and also
Constraints.
TYPE OF DECISION BASED ON FUNCTION OF BUSINESS
Decisions can be classified based on the functions of business:
 Financial Decisions: related to costing, budgeting, accounting.
 Production Decisions: related to quantity and quality of products, choice of technology, product mix.
 Marketing Decisions: related to sales volume, sales promotion, market research.
 Personnel Decisions: related to recruitment, training…
 Miscellaneous Decisions: related to data processing, purchasing, inventory control
 Hospital Manager’s Decision: related to decisions of minimizing cost of treating while considering satisfactory level of care.
 University President’s Decision: relates to decisions of enrolling students as many as possible while meeting strict budgeting constraint set by state board.
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Syllabus 1

Managerial Econ. = MBA
MARKET MECHANISM
Is economics theory that depicts / matches demand of consumers with cost and benefit of producing the product. This can be put in graphical way by demand and supply diagram.
 At place where demand and supply curve intersect each other: Price is set as demand equals supply. => Benefit of consuming one product equals cost of producing it.

If Outputs / Supply are less = benefit from consuming more > cost of producing.

If Outputs / Supply are high = cost of producing will increase decreasing benefit gained.

So the point where demand equals supply is Efficient.
Now we are living in A Global Market Place in which ant market environment will be influenced by global market. -> The age of Information .
Now a day, Markets can form a mutual aid to allow people to change their life through exchanging. Markets can also face each other with competition which can make it difficult to increase profit through Selling More / Charging high Prices . => This current market competition has forced managers to increase productivity by reducing cost to satisfy stockholders desire of gaining gr8 profit.
As world market is expanding in proportion to population International Marketing is necessary for firms wish to survive in dynamic world economy => a place with high competition and resources will be a tool to gain a supreme competitiveness. This forces firms to focus on both responding for survival /have Market Share/ and Prosperity /Profit
Maximization/.
Competition Study is now part of Market Analysis . It is now becoming necessary to study proposed production, sales, and pricing policies of competitors; to analyze how customers would analyze our product with competitors. => for the analysis Research and Development work must be maintained to get comments of customers about our and competitors product.
MARKET SEGMENTATION AND MARKET MIX
Obtaining Accurate Information is Mandatory to develop effective marketing strategy =>
/ Market Segmentation & Marketing Mix /.

Market Segmentation: involves grouping customers based on different characteristics /Income, Age, Race, Degree of Urbanization, Location,
Education/.

Segmentation of Market allows firm to avoid head on competition by differentiating own product through Styling, Packaging, Promotion and Method of Distribution.
 If markets are be classified in to groups based on homogenous characteristics; will enable firms to tap market effectively.
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Managerial Econ. = MBA a) Geographic / Territorial Segmentation – is making a regional distinctions.
Assumes that people live in the same area have almost similar needs and wants.
E.g., Rural & Urban Market, Nation, State, Regions.

Used to know influence of regional variation and climates to product preference / taste. b) Demographic Segmentation – Customers will be classified based on their demographic Characteristics.
E.g., Sex, Income, Occupation, Educational Levels, Household Size c) Need Oriented / Benefit Segmentation – Classifying by needs / benefit needed by particular group. d) Volume Segmentation – Classifying based on extent of use.
E.g., Heavy, Medium, Light and None users. e) Lifestyle Segmentation – Classifying based on mode of living of a segment.
E.g., How they spend time, Nature of Interest
To be competitive firms need to:
 Examine expenditure to minimize waste and maximize return.

Keep close to customers to understand their want and desire.

Must focus on Maximizing Customers Satisfaction also. Satisfaction – feeling of pleasure or disappointment result from comparing used product performance with expectation.
 If customer is satisfied stays loyal longer, buys more of new and existing firm’s products, talks about firm’s product, gives a comment to firm.
HISTORY OF MARKETING
In early era bartering served the society well but later was replaced by Monetary Economy because of different difficulties /Lack of double coincidence, Lack of common measure of value, difficulty to store wealth/.
In around 1840; beginning of technology era marketing has faced with difficulties /Limited transportation and Infrastructure, and difficulty to obtain accurate and timely information/ -> which has made large investments to be Risky. But slightly market demand and technological development made increased and speedup Production and Distribution.
Development of Transportation and Telecommunication Infrastructures were one of contributing forces to change condition of business. Growth of Large projects awaited firm’s, governments to develop techniques to assure management control and minimization of cost.

Government supported through designating Location and Time to trade merchandise – will help buyers and sellers where to assemble and arrange transactions. And this exchange process enabled households to focus on
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Managerial Econ. = MBA
Specialization in Production rather than selecting self-sufficient firm producing all product and services.

Existence of Market is result of Specialization in Production .

Specialization can help producer to produce More Cheaply and Exchange
Surplus output to other producers/
1 st
Societies moved from Subsistence Economy /Families produce and consume for their self/
----> Some Produced product for their self and was demanded by their neighbor and then they become /Producer of the Market/ ----> Bartering -----> Trading Era /Families Sold Surplus out Put to Middlemen/ ----> to Specialization of Production
Even More Advanced economies /US & UK/ market does not change until industrial revolution.
Technology Developed b/n 1840 – 1910 / Low cost producing technologies = Steel,
Aluminum, Chemicals / promoted growth of Mass Production and Permitted highvolume.
1910 -> establishment of infrastructure /Transport - Rail Road & Communication/ fostered growth of national markets by enabling firms to focus on fast and reliable movement of goods using accurate Communication. -> Enabled Mass Distribution.

1910’s developments / DEVELOPMENT OF POSTAL SYSTEM AND
TELEGRAPH / enabled business to communicate quick and reliably and enabled firm’s and managers to feel confident in expanding.
1876 invention of telephone
– as most telephone devices were not known and also telephone service raised patent issues and start of competition to provide telephone service has made profitability 2b uncertain.
Production Era - From Industrial Revolution to 1930 most organizations were in production era focusing on producing and selling more; but after Industrial Revolution westerns were able to produce more => Changed the focus from Just Producing to
Competition.
Sales Era a period which companies will focus on Selling More because of Competition.
=> The problem was where to put companies effort /Either purchase, production, shipping or sales/.
Market Department Era- the time which marketing activities will be brought together under a department to integrate and improve short-run firm’s activity.
Around 1960, Marketing Company Era – era like Market Department Era but involves in long range plans to guide organization with Marketing Concept.
 Profit / Long-term Success = Customer Satisfaction + Company
Effort + Marketing Concept.
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Managerial Econ. = MBA
Particularly after WWII /1950/ Business widely expanded and become complex but as a result created numerous problems due to Change in Business Environment & Variability and Unpredictability of Achievement.
Even they tried to apply Principles of economics but it did not provide readymade solution.
Today’s business environment is becoming too risky and uncertain which made it hard to solve problems through application of economic theories. These issues initiated
Academicians to develop a discipline known as “
Business Economics”
Todays “ Managerial
Economics
”
Managerial economics is application of Economic theories and analytical tools to support decision making.
The following factors contributed for establishment of Managerial Economics Course for management:
Complexity of business b/c of variation in business environment and conditions.
Increase in need of skilled man power.
Increase of need to use Economic Logic, Theory and Tools for business decision making.
Business
– is involvement in functions of Producing and Marketing of goods and services which requires important activity of management.
Increase in complexity and size give rise to application of economic concept, theory and analysis tools. Traditionally business owned and managed by individuals / business families were managed using traditional training and experiences gained from a family; but this skills and experiences are not sufficient enough to give respondent decisions to dynamic opportunity, challenge, risks from internal and external environment of the organization; through application of Managerial Economics one can bear rational managerial decisions.
ENVIRONMENTAL INFLUENCES ON BUSINESS
Success and Failure of business is dependent on dynamic business environment. Being a success factor; manager cannot just control environments BUT through understanding the way environment affects business manager can either produce benefit from it or offer protection against adverse consequences. a) Economic Environment: economic environment can vary across the globe & is dynamic through time; this factor can force a firm to change its marketing strategy.
Marketers have to be careful towards Trends affect Purchasing power as they can have effect on products geared to High income and Price
Sensitive Customers.
Economic Indicators : Inflation Rate, GNP, Unemployment rate interest rate, value of currency.
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Managerial Econ. = MBA
 Business Cycle in Z Economic Environment

In recovery / boom business cycle organizations enjoy demand for output and funds easily available.
 Making Investment, Employment
Opportunity can be useful to increase productivity.

In recession / downward shift of economy
/ business cycle organizations demand for product and profit decreases, and unemployment increases.
 At this stage organizations must decrease their product.
Traditionally managers focus on study of home countries economy but now focus has been shifted to external economies as economies of the world are connected. Exchange Rate can be important in international trade as if domestic currency is strong, it can buy more foreign note. This will make domestic products expensive overseas and foreign products cheaper. b) Socio-Economic Environment – is an environment that can affect how and why people live and behave the way they do – which will affect buying behavior, economic, political and social environment.
E.
g., Language used, Religion being followed, food being eaten….

Society shapes beliefs, value and norm define taste and preferences, cultures
/stables belief that shapes how a person perceive and makes decision/ determines how we use our limited supply of natural resources => if manager can identify these he can create big opportunity. c) Political, Legal, and Regulatory Forces – Legal environments is composed of Law,
Government Agency which set rules /*Constraint / Opportunity*/ for business to operate.

Marketing decision are affected by development in political /Stability of Nation/ and legal environment.

USA => Consumer Protection Legislation – are organized movement of citizens and government to strength promotion assuming that it competition can help the economy.

India => food companies need approval to launch brands that duplicate that already exist in the market.

European Commission => established framework of laws covering competitive behavior, product standard, packaging and labeling. d) Customers – are Individuals or Organization that purchase product or services.
 Market Research can be useful to find preferences of customers which will ne used to dictate product or services to be produced.
 As customers are factors that can affect different issues /Volume, Products – quality, feature price and point of sale/ in business environments firm can respond in:

Conducting market research to provide pdt. And ss to meet preference of present and potential customers.
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Managerial Econ. = MBA

Conducting a research on present and potential customers to use the result as a guideline. e) Competitors – to avoid head-on competition firm has to find new / better way to satisfy customer needs.

Firms to be effective; are required understand need and desire of customers but also are expected to find out competitive strategies employed by competitors. 
Decisions in competition may differ based on nature of completion and type of products /Substitute / Complementary/.

In most competitive business environment so many efforts are made on customers in order to capture lions share. Firms have to consider barriers that can make it impossible for a competitor to enter and even enter the market environment.

Competitor analysis helps firm to anticipate competitor’s moves and counter move.

The analysis has to include strength and weakness of competitor. f) Suppliers – all organization need financial and non-financial inputs in order to produce; to this end inputs quality, cost, and timeliness can be a problem. g) Human Resources – are vast resources of people that are obtained from external environment of the organization.

As peoples are precious resource of organization; must attract and keep individuals needs to achieve objectives. h) Technological Environment
– it is application of science to convert economic resources into output.

Businessman / manager have to keep in touch with development and advancements and cope with changes in technology.

Adopt New Tech.
 
Surplus Prdn.
 
Prices
 
Unit Purchase
 Development of TV and Internet made it possible to quickly promote product and communicate over distances.
THEORY OF FIRM AND THEORY OF DECISION MAKING

Theory of Firm – firm needs to Maximize Profit through predicting amount of commodity to produce under different market structure and organization.
 Theory of Decision Making – concerned how expectations are formed under uncertainty.

Economic Theory of a firm – uses function of price, income, and prices of related products to determine how changes in these factors will affect future demand.
Quantity Demand = f (Price of Product /P/, Income /Y/, Price of Related Product /Pc –
Complementary, Ps - Substitute/)
Q = f (P, Y, Pc, Ps)
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