Scope/Areas of Managerial Economics
The areas of business issues to which economic theories can be directlyapplied may be divided into followings:a)
Demand Analysis and Forecastingb)
Cost and Production Analysisc)
Pricing Decision, Policies and Practicesd)
Linear Programming and the Theory of Games
Demand Analysis and Forecasting.
Effective decision-making atthe fir level depends on accurate estimates of demand. Demandanalysis aims at discovering the forces that determine sales. It has twomain managerial purposes (i)
. It is useful for business planning and hence occupies a pivotalplace in managerial economics. The demand analysis mainly relates tothe study of
demand determinants, demand distinctions and demandforecasting.
The Case of Wool production:a)
During the late 1980s, wool prices increased considerably due toincreased demand by China and the former Soviet Union. From1977 to 1988, the price of wool for worsted clothing rose from$3.67 to $5.81 per pound. Expecting that wool prices would remainhigh, wool producers raised a lot more sheep. Did this result in ashift right in the supply curve for wool?b)
At the same time the Chinese and Russians cut back on theirpurchases of wool because of lack of foreign currency (and in thecase of Chain because of organizational problem).c)
Australia is the world’s largest producer of wool and for a timeAustralia Wool Corporation propped up the price of wool by buyingup any unsold Australian wool.Why was it necessary to prevent the price from falling?