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Nature and Scope of Managerial Economics

Scope of Managerial Economics:
Well scope is something which tells us how far a particular
subject will go. As faras Managerial Economic is
concerned it is very wide in scope. It takes
intoaccount almost all the problems and areas of manager and
the firm.ME deals with Demand analysis, Forecasting,
Production function, Cost analysis,Inventory Management,
Advertising, Pricing System, Resource allocation etc.Following
aspects are to be taken into account while knowing the scope of
1. Demand analysis and forecasting:
Unless and until knowing thed e m a n d f o r a p r o d
uct how can we think of producing that produc
t . Therefore demand analysis is something which
is necessary for theproduction function to happen.
Demand analysis helps in analyzing
thev a r i o u s t y p e s o f d e m a n d w h i c h e n a b l e s
t h e m a n a g e r t o a r r i v e a t reasonable estimates
of demand for product of his company. Managersnot
only assess the current demand but he has to take
into account thefuture demand also.
2. Production function:
Conversion of inputs into outputs is known asp r o
duction function. With limited resources we h
a v e t o m a k e t h e alternative uses of this limited
resource. Factor of production called asinputs is
combined in a particular way to get the maximum output.
Whenthe price of input rises the firm is forced to work
out a combination of inputs to ensure the least cost

method of estimating c o s t s . Under cost analysis we will take intoa c c o u n t d eterminants of costs. are the responsibility of those who get it readyfor the press. It also helps in inventory controlling. the measuring of the economic effects of advertising ---. Inventory Management: What do you mean by the term inventory? Wellthe actual meaning of the term inventory is stock. t h e relationship between cost and output . Advertising: Advertising is a promotional activity. etc.3. It refers to stock of rawmaterials which a firm keeps.It is through advertising only that the message . the forecast of the cost. It takes into account all the c osts incurred whileproducing a particular product. the problem of cost.M a n a g e r i a l e c o n o m i c s w i l l u s e s u c h m e t h o d s a s A B C A n a l y s i s . illustrations. Both the high inventory and low inventory is not good for the firm. profit. 4. Now here the question arises how much of the inventory is ideal stock. to minimize in ventorycost.. and some mathematical models.are the problems of the manager. s i m p l e simulation exer cises. Cost analysis: Cost analysis is helpful in understanding the cost of aparticular product. In advertising whilethe copy. 5. There’s a vast difference between producing a product and marketing it. the methods of determining the totaladvertisement costs and budget.these terms are very vital to any firm or business.

Itis heavily dependent on .As we all know that we have scarce resources. Wehave to make the alternate use of the available resources. Resource allocation: Resources are allocated according to the needsonly to achieve the level of optimization. 6. It is also importantto understand how product has to be priced under different kinds of competition. As you allknow that pricing system as a concept was developed by economics andit is widely used in managerial economics. but a complete knowledge of theprice system is quite essential to determine the price. and unlimited needs. Pricing is also one of thecentral functions of an enterprise. 7. While pricing commodity the cost of production has to be taken into account. Pricing = cost plus pricing and the policies of the enterprise Nowit is clear that the price system touches the s everal aspects of managerialeconomics and helps managers to take valid and profitable decisions.about the product shouldreach the consumer before he thinks to buy it. For the allocationof the resources various advanced tools such as linear programming are used toarrive at the best course of action. Pricing system: Here pricing refers to the pricing of a product.Advertising forms the integral part of decision making and forwardplanning. NATURE OF MANAGERIAL ECONOMICS • Managerial economics aims at providing help in decision making by firms. for different markets.

• In managerial economics emphasis is laid on those prepositions which arelikely to be useful to management. . The various concepts of micro economics used frequently in managerial economicsElasticity of demandMarginal cost Marginal revenueMarket structures and their significance in pricing policies.In managerial economics macro economics indicates the relationship between(a) the magnitude of investment and the level of national income. based on the relationship between the level of national incomeand the demand for a particular product. (c) the level of consumptionand the level of national income. It is the level of national incomeonly that the level of various products depends.microeconomic theory.• Macro economy is used to identify the level of demand at some future pointin time. (b) the levelof national income and the level of employment.