Managerial Economics
MANAGERIAL ECONOMICS
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Introduction
·
Managerial Economics
is the application of economics theory and methodology to the business
administration practices
·
The basic characteristics of managerial
economics are
o
It involves the application of economic
theory like “Micro Economic Analysis”
o
It is a science as well as an art
facilitating better managerial discipline
o
It concerned with the firm’s behaviour in
optimum allocation of resources
o
It provide tools to identify the best
alternative
Scope
of Managerial Economics
· Demand Analysis
o
Managerial economics serves as a guide to
management for maintaining the market position and enlarging profits by
§ Transforming productive resources into goods
§ Accurate estimation of demand
§ Forecasting future sales
· Cost Analysis
o
Cost analysis is the study of economic costs
by the help of data drawn from the firm’s accounting records
o
It yields significant cost estimates that are
useful for management decisions
· Production &
Supply Analysis
o
Production analysis proceeds in physical
terms
o
It deals with the various production
functions & their managerial uses
o
Supply analysis deals with the various
aspects of supply of a commodity
o
The important aspects of supply analysis are
§ Supply schedule
§ Curves & Function
§ Law of supply & it’s limitations
§ Elasticity of supply
· Pricing Decision
Policies & Practices
o
An important area of managerial economics
o
Prices is the genesis of the revenue of a
firm & success of a business firm
o
It deals with the areas like
§ Price determination
§ Pricing methods
§ Differential pricing
§ Product line pricing
§ & Price forecasting
· Profit Management
o
The first idea to establish a firm is profit
o
In log run the profit provides the chief
measure of success
o
The perfect knowledge of future makes the
profit analysis very easy
· Capital Management
o
It involves the planning & control of
capital expenditure
o
The most troublesome for a manager is the
capital investment
o
Its a matter of top level decision and
requires considerable time & labour
Tools
of Managerial Economics
·
Incremental Principle (decision is said to be
rational if the given firm has a objective of profit maximization)
·
Equi-marginal Principle (a consumer will
reach the stage of equilibrium when the marginal utilities of various
commodities he/she consumes are equal)
·
Opportunity Cost Principle (minimum price
that would be necessary to retain a factor-service in it’s given use)
·
Time Perspective Principle (a manager should give
due emphasis on both short & long term impact of his decision)
·
Discounting Principle (if a decision affects
costs & revenues in long-run than all those costs & revenues must be
discounted to present values before valid comparison of alternatives is
possible)
Roles
& Responsibilities of a Managerial Economist
·
Studies the economic pattern at macro level
·
Consistently examine the probabilities of
transforming an ever changing economic environment into profitable business
avenues
·
Carries cost benefit analysis
·
Assists the business planning process of a
firm
·
Conduct a detailed research on industrial
market
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