Nature and Scope of Managerial Economics

V V Siddhanti

Scope of Managerial Economics

Managerial Economics deals with

Demand analysis Forecasting Production function Cost analysis Inventory Management Advertising Pricing System Resource allocation, etc.

Demand analysis and forecasting

Demand analysis is something which is

necessary for the production function to happen Demand analysis helps in analyzing the various types of demand which enables the manager to arrive at reasonable estimates of demand for product of his company Managers not only assess the current demand but he has to take into account the future demand also

Production function
Production function = i/p conversion o/p With limited resources we have to make the

optimum use of available resource Factors of production called as inputs is combined in a particular way to get the maximum output When the price of input rises the firm is forced to work out a combination of inputs to ensure the least cost combination

Cost analysis
Cost analysis is helpful in understanding the

cost of a particular product It takes into account all the costs incurred while producing a particular product Under cost analysis we will take into account determinants of costs, method of estimating costs, the relationship between cost and output, the forecast of the cost, profit, these terms are very vital to any firm or business

Inventory Management
Inventory is stock - stock of raw materials

which a firm keeps Both the high inventory and low inventory is not good for the firm Managerial economics will use such methods as ABC Analysis, simple inventory mgt exercises, and some mathematical models, to minimize inventory cost

Advertising
Advertising is a promotional activity Advertising forms the integral part of decision

making and forward planning. Theres a vast difference between producing a product and marketing it Determining the total advertisement costs and budget, the measuring of the economic effects of advertising - are the problems of the manager.

Pricing system
Pricing refers to the pricing of a product Pricing system as a concept was developed

by economics Pricing commodity the cost of production has to be taken into account Price = Cost + Profit margin

Resource allocation
Scarce resources and unlimited needs Resources are allocated according to the

needs only to achieve the level of optimization Advanced tools such as linear programming are used to arrive at the best course of action.

Nature of Managerial Economics

Managerial economics aims at providing help in

decision making by firms It is heavily dependent on microeconomic theory The various concepts of micro economics used frequently in managerial economics

Law of Demand Elasticity of demand Total cost Total revenue Market structures and their significance in pricing policies.

Relationship between managerial economic, economic, and other subjects

Economics Mathematics Statistics Accounting Operation Research Management

Positive or Normative???
Positive statements are claims that attempt to

describe the world as it is Normative on the other hand claims as to how the world should be Positive statements are descriptive Normative statements are prescriptive We can confirm and refute the positive statements with evidence but evaluating normative statements needs values and facts

Economics and ME
What is the basic function of the managers

of the business? As you all know that the basic function of the manager of the firm is to achieve the organizational objectives to the maximum possible extent with the limited resources placed at their disposal. Economics contributes a great deal towards the performance of managerial duties and responsibilities

Mathematics & ME
Businessmen deal primarily with concepts

that are essentially quantitative in nature e.g. demand, price, cost, wages etc. The use of mathematical logic I the analysis of economic variable provides not only clarity of concepts but also a logical and systematical framework.

Statistics and ME
Statistical techniques are used in collecting

processing and analyzing business data, testing and validity of economics laws with the real economic phenomenon before they are applied to business analysis. for e.g. theory of probability, forecasting techniques, and regression analysis help the decision makers in predicting the future course of economic events and probable outcome of their business decision.

Operation research and managerial economics

Its an inter-disciplinary solution finding

technique It combines economics, mathematics, and statistics to build models for solving specific business problems. Linear programming and goal programming are two widely used OR in business decision making

Management theory and managerial economics

Management is doing right things, at the right

time, with the help of right people so that organizational goals can be achieved These activities involves lots decision making activities This is where the economics finds a prominent place

Accounting and managerial economics

Accounting data and statement constitute the

language of business Accounting assists ME in taking financial decisions of firms

Conclusions:
Managerial Economics is closely related to various subjects i.e. Economics, mathematics, statistics, accountings. Computers etc. a trained managerial economist integrates concepts and methods from all these subjects bringing them to bear on business problem of a firm. In particular all these subjects are getting closed to Managerial Economics and there appears to be trends towards their integration.