3. Prepared by :
Dr. K. BARANIDHARAN
ENGINEERING ECONOMICS
AND
FINANCIAL ACCOUNTING
Sri Sairam Institute of Technology3
4. ENGINEERING
ECONOMICS
Engineers have an added responsibility and that is
to include economics in their calculation &
decisions. When the economics principles are
applied to engg. Problems, then a new branch of
knowledge called engineering economics
Sri Sairam Institute of Technology 4
5. ECONOMICS
Economics is a social science that studies the
behavior of human beings. Organization or any
entity mode up of human beings in situations
involving choice.
Sri Sairam Institute of Technology 5
6. ECONOMIC ACTIVITIES
The activities are carried out
with the purpose of earning on
income or making money, they
are called economic activities.
Activities involvue MONEY
Earning income in either CASH
or KIND
Sri Sairam Institute of Technology6
9. ECONOMICS - DEFINITION
FATHER OF ECONOMICST:- Adam Smith defined
economics as “Economics is the sciences of wealth”
wealth?
Wealth has been defined as “stock of goods existing
at a given time that have money value”.
classification of wealth.
Personal wealth(individual wealth)
Social wealth( collective wealth)
National wealth (a+b)
Cosmopolitan wealth (e.g. ocean)
Sri Sairam Institute of Technology9
10. Alfred Marshall Economics is
defined as “a study of mankind
in the ordinary business of life”
Lionel Robbins’:Economics
is the science which studies
human behaviour as a
relationship between ends and
scarce means which have
alternative usesSri Sairam Institute of
Technology
10
11. MICRO ECONOMICS
Micro means small. Micro
economics deals with
problems such as the output
of a single firm, price of a
single commodity and
spending on goods by a
single household.
Sri Sairam Institute of Technology11
12. MACRO ECONOMICS
Macroeconomics studies the
economic system as a whole. In
it, we get the complete picture
of the working of the economy. It
is a study of economic
aggregate such as total
employment, savings, and
investmentSri Sairam Institute of Technology12
14. types of the economic systems
CAPITALIST ECONOMY:
An economic system based on private
ownership of capital
Capitalism encourages private
investment and business, compared
to a government-controlled economy.
Investors in these private companies
(i.e. shareholders) also own the firms
and are known as capitalists.
Sri Sairam Institute of Technology14
15. MIXED ECONOMY
Both private individuals
and government
participate in seeking
answers for the above
economic.
Sri Sairam Institute of Technology15
16. FREE OR LAISSEZ-FARE
ECONOMY
The economy
where government
keeps its hands off
such major
economicSri Sairam Institute of Technology16
17. MANAGERIAL ECONOMICS
MEANING
Managerial economics is economics
applied in decision making. It is the
branch of economics which serves
as a link between abstract theory
and managerial practice.
It is based on the economic analysis
for identifying problems,organizing
information and evaluating
alternatives
S R I S A I R A M I N S T I T U T E O F T E C H N O L O G Y 17
18. DEFINITIONS OF M E
Sri Sairam Institute of Technology
18
―Managerial economics is the of
economic modes of thought to
analyse business situationǁ
•-MC.NAIR AND MERIAM
―Managerial economics is the
integration of economic theory with
business practice for the purpose of
facilitating decision making and
forward planning by the management.
19. NATURE OF M E
• 1. It is microeconomic in character as it
concentrate only on the study of the firm not
on the working of the economy
• 2. It takes help from the macroeconomics
to understand the environment in which
the firm operates‘
• 3. It is normative rather than positive i.e., it gives
answer for the question what ought to be than what
is,was.
• 4. It is both conceptual and metrical.
Sri Sairam Institute of Technology 19
20. SRI SAIRAM INSTITUTE OF TECHNOLOGY 20
• 5. It focuses mainly on the theory of
the firm than on distribution„
• 6. Knowledge of managerial economics
helps in making wise choices. i.e.,
choices among scarcity of resources.
• 7. It is goal oriented i.e., aims at
achievement of objectives
21. SIFNIFICANCE OF M E
1. It helps in decision making
2. Decisionmaking means a balance between
simplification of analysis to be manageable
and complication of factors in hand
3. It helps the manager to become an more
competent builder
4. It helps in providing most of the concepts that
are needed for the analysis of business
problems,
The concepts such as elasticity of demand
,fixed, variable cost, SR and LR costs,
opportunity costs,NPV
etc.,
Sri Sairam Institute of Technology
21
22. 5. It helps in making decisions in
the following.
What should be the product mix?
Which is the production technique?
What is the i/p mix at least cost?
What should be the level of output
and price?
How to take investment decisions?
How much should the firm advertise
Sri Sairam Institute of Technology22
23. OBJECTIVES OF M E
To help in understanding the
market condition & general
economic environment with
in which the firm operate.
To provide a philosophy for
understanding & analyzing
resource allocation problem
Sri Sairam Institute of Technology23
24. SCOPE OF M E
Objectives of a business firm
Demand analysis and forecasting
Cost analysis
Production management
Supply analysis
Pricing decisions, policies and
practices
Profit management
Capital budgeting and investment
decisions
Decision theory under uncertaintySri Sairam Institute of Technology24
25. MAIN AREA OF M E, 1.DEMAND
DECISION
THe Forecasting Of Demand For
A Given Product And Service Is
The First Task Od The ME.
The behavioural implication such as
the customer response to given
changes of price and supply.
The changes of income levels of
customer
Sri Sairam Institute of Technology25
26. 2.INPUT-OUTPUT DECISION
The cost of inputs in
relation to output are
studied to optimise
profits.
Production and cost
function are estimated to
certain parameters,Sri Sairam Institute of Technology26
27. 3.PRICE-OUTPUT DECISION
The Production Is Ready
And The Task Is
Determine The Price In
Different Market
Situation Such As
Perfect And Imperfect
Markets Ranging From
Monopoly.
Sri Sairam Institute of Technology27
28. 4.PROFIT - RELATED
DECISION
The technique such as
Break Even Analysis,
cost reduction and
control and ratio
analysis to ascertain
the level of profit.
Sri Sairam Institute of Technology28
29. 5.INVESTMENT DECISION
Investment decision are also
called capital budgeting
decisions.
Involve the large fund
commitment, which
determine the fate of the
firm.
Sri Sairam Institute of Technology29
30. 6.ECONOMIC FORECASTING AND
FORWARD PLANNING
The economic forecasting leads to the
forward planning.
The firm operate environment which is
dominated by the INTERNAL AND
EXTERNAL factors.
EXTERNAL: govt policy, competitation,
employment, labour, human resources,
finance, marketing..
INTERNAL: policies, procedures relating to
the finance, people, market and
products….Sri Sairam Institute of Technology30
31. M E related with OTHER
DISCIPLINES
Managerial Economics and
Traditional Economics:
Economics and Managerial
economics both are facing
identical problems,i.e., problem
of scarcity and resource
allocation.
Since labour and capital are
always limited it must find way
for effective utilizing of theseSri Sairam Institute of Technology31
32. MANAGERIAL ECONOMICS
Sri Sairam Institute of Technology
32
HELP IN UNDERSTANDING THE
MARKET CONDITIONS AND THE
GENERAL ECONOMIC
ENVIRONMENTWITHIN WHICH
THE FIRM OPERATES.
TO PROVIDE THE PHILOSOPHY
FOR UNDERSTANDING AND
ANALYSING THE RESOURCE
ALLOCATION PROBLEMS
33. 1. M E OPERATIONS RESEARCH
Both operations research and
managerial economics are concerned
with taking effective decisions,
managerial economics is a undamental
academic subject which seeks to
understand and to analyse the
problems of business decision
making while OR is an activity carried
out by functional specialist within the
firm to help the manager to do his job
of solving decision problems
Sri Sairam Institute of Technology33
34. ITS MAIN CONTRIBUTION TO
MANAGERIAL ECONOMICS
OR models like queuing,linear
programming etc.., are widely
used in managerial economics
Model building, economic
models are more general and
confined to broad economic
decision making
Sri Sairam Institute of Technology34
35. 2.ML ECONOMICS AND
MATHEMATICS
Mathematics is closely related
to managerial because
managerial economics ,being
conceptual but also metrical.
Its metrical property is used to
estimate and predict the
relevant economic factors for
decision making and forwardSri Sairam Institute of Technology35
36. ITS MAIN CONTRIBUTION TO
MANAGERIAL ECONOMICS
Geometry, algebra and calculus
Logarithms and exponential,
vectors and determinants,
input-output tables etc.,
Even OR can be included as a
part of mathematical exercise
Sri Sairam Institute of Technology36
37. 3. MANAGERIAL ECONOMICS
AND STATISTICS
Statistics is widely used in
managerial economics. It is mainly
needed for a correct judgement
and decision making
ITS MAIN CONTRIBUTION TO
MANAGERIAL ECONOMICS
To handle the unforeseen
circumstances the theory probability
is mainly used.Sri Sairam Institute of Technology37
38. THE THEORY OF DECISION
MAKING
The theory of decision making is
relatively a new subject that has
significance for managerial
economics.
Much of economic theory is based
on the single goal MAXIMISATION
OF PROFIT, but theory of decision
making recognizes the multiplicity of
goals and the pervasiveness ofSri Sairam Institute of Technology38
39. 5.ROLE OF MANAGERIAL
ECONOMIST IN BUSINESS
The task of organizing and
processing information and
then making an intelligent
decision based upon two
general forms
Task of making Specific
decisions
Sri Sairam Institute of Technology39
40. Task of making Specific decisions
Production scheduling
Demand forecasting
Market research
Economic analysis of the industry
Investment appraisal
Security management appraisal
Advice on trade
Advice on foreign exchange management
Pricing and related decisions
Sri Sairam Institute of Technology40
41. Task of making General
decisions
Analysing the general economic
condition of the economy
Analyzing the demand for the
product
Analysing the general market
condition of the economy
Sri Sairam Institute of Technology41
42. 6.ACCOUNTANCY
Accountant provides accounting
information relating to cost,
revenues, receivables,
payables, profit/losses. In the
data performance of the firm
result.
Decision making and forward
planning.Sri Sairam Institute of Technology42
43. 7.PSYCHOLOGY
CONSUMER
PSYCHOLOGY is the bsis
on which a ME acts.
The customer react the
change the price or supply
and it is effect of
demand/profits is the main
focus study of ME.
Sri Sairam Institute of Technology43
44. 8.Organisational behaviour
The study develop
behavioural model of
firm integrating the
manager‟s behaviour
with that of the owner.
Sri Sairam Institute of Technology44