This document provides an introduction to business economics. It defines business economics as the integration of economic theory with business practice to facilitate decision making. The key points covered include: - Business economics applies economic theory and methodology to solve business problems and make optimal decisions. - It is microeconomic in nature and focuses on firms. It is normative, pragmatic, and prescriptive to help management make correct decisions and plan for the future. - The scope of business economics includes demand analysis, cost analysis, production, pricing, profit and capital management. - A business economist studies macroeconomic factors and links them to firms, assists in planning, performs cost-benefit analyses, and conducts research and statistical analysis

1. Introduction to Business
Economics

2. Business Economics
 “Business Economics (Managerial Economics) is
the integration of economic theory with business
practice for the purpose of facilitating decision
making and forward planning by management.”
- Spencerand Seegelman.
It refers to the integration of economic theory
with business practice

3. Business economic meets these
needs of the business firm
ECONOMIC THEORY
AND METHODOLOGY
DECISION PROBLEMS IN
BUSINESS
BUSINESS ECONOMIC APPLICATION OF
ECONOMIC THEORY AND METHODOLOGY
TO SOLVING BUSINESS PROBLEMS
OPTIMAL
SOLUTION TO
BUSINESS
PROBLEMS

4. Nature/Characteristics of Business
Ecocnomics
 Micro in nature - concerned with business at
firm level
 Normative science -Concerned with goals and
their achievement
 Pragmatic-Applies economic theory in practical
 Prescriptive -Prescribes solutions
 Decision Making -Helps management takes
correct decision and prepare/plan for future
 Multidisciplinary -Makes use of mathematics,
statistic, operations research
 Art and science- It is both an art and science

5. Scope of Business Economics
 1. Demand Analysis and Forecasting
 2. Cost Analysis
 3. Production and Supply Analysis
 4. Pricing Decisions, Policies and Practices
 5. Profit Management, and
 6. Capital Management

6. Role of Business Economist
 Studies at macro level and links it to the firm
 Transforms it to profitable business
 Assists in business planning
 Carried cost benefit analysis
 Decision making related to – price ,investments,
goods
 Conducts research on industrial market
 Conducts statistical analysis
 Must be vigilant and ability to handle pressures

7. Microeconomics
 is a branch of economics that
 studies the behavior of individuals and firms in making
decisions regarding the allocation of limited
resources.
 SCOPE:-
 Studies individuals/firms
 Helps firms to allocate/use scarce resources
 Decides price based on demand and supply
 Formulates policies and plans for firm’s economic
development
 Helps govt fix tax for buyers and sellers
 Studies different conditions of markets eg. Monopoly,
oligopoly

8. Macroeconomics
 is the branch of economics that studies the
behavior and performance of an economy as a
whole. It focuses on the aggregate changes in the
economy such as unemployment, growth rate,
gross domestic product and inflation.

9. Law of Diminishing Marginal
Utility
 Other things remaining the same when a person takes
successive units of a commodity, the marginal utility
diminishes constantly.
 ASSUMPTIONS:-
1) Utility is measurable
2) Rational consumer aims at the maximizing his utility
3) Measurement unit is constant
4) Commodity is taken continuously
5) There should be proper units of a good consumed by
the consumer.
6) Various units of commodity are homogeneous
7) Taste of the consumer remains same
8) Income of the consumer remains constant
9) No change in fashion.
10) Prices of the substitutes do not change

10. Law of DMU
 EXAMPLE:
 Let us assume that if a man
is thirsty and he takes the
glasses of water
successively, the marginal
utility of the successive
glasses of water decreases
ultimately such that he
reaches the point where he
is completely satisfied. If he
is forced further to continue
consumption after this point
the marginal utility becomes
negative.
 Here Marginal utility

11. Law of Diminishing Marginal
Utility
 Limitations:-
 The law does not hold well in - rare
collections,money,knowledge, art and
innovations,for precious goods,Historical things ,
if consumer behaves in irrational manner.
 Importance :
 By purchasing more of a commodity the marginal
utility decreases. Due to this behaviour, the
consumer cuts his expenditures to that
commodity.

12. EQUI MARGINAL PRINCIPLE
 It states that the consumer will spend his money-
income on different goods in such a way that the
marginal utility of each good is proportional to its
price:
 MUx / Px = MUy / Py = MUz / Pz
 MU = marginal utility
 P = price of good.

13. EQUI MARGINAL PRINCIPLE
 Similarly, a producer who wants to maximize profit or
reach equilibrium will use the technique of
production which satisfies the following condition:
 MRP1 / MC1 = MRP2 / MC2 = MRP3 / MC3
 MRP= marginal revenue product of inputs
 MC=marginal cost.
 Therefore, a manger should make rational decision
by allocating resources such that the ratio of
marginal returns and marginal costs of various
resources is equal.

14. Thank You