SCHOOL OF POSTGRADUATE STUDIES

BAYERO UNIVERSITY KANO

DEPARTMENT OF ECONOMICS

COURSE TITLE
MANAGERIAL ECONOMICS

COURSE CODE
MHC 8309

ASSIGNMENT BY

JUDE PRAISE FRIDAY

SPS/20/MHC/00060

ASSIGNMENT
LIST AND EXPLAIN 5 (FIVE) SCOPE OF MANAGERIAL ECONOMICS

JANUARY, 2022
Introduction

Managerial economics is a field of study that is concerned with the application of economic

theory to the management of businesses. It is concerned with the application of economic

concepts and principles in the context of corporate decision-making. Previously, it was referred

to as "Business Economics," but that name has now been replaced by Managerial Economics

(Maria, 2016).

Managerial economics, according to Moschandreas (2019), is the study of economic theories,

reasoning, and methods that are generally utilized to find solutions to actual problems in

business. Managerial Economics is thus comprised of that portion of economic information or

economic theories that is utilized as a tool for analyzing business problems and making sensible

business decisions, as opposed to other branches of economic science. Informally known as

Business Economics or Economic for Firms, Managerial Economics is a branch of economics

that studies firms.

Economic theory, principles, concepts, and techniques are applied to business management in

order to solve business and management problems. Managerial economics is a science that

deals with the application of various economic theories, principles, concepts, and techniques

to business management in order to solve business and management problems. In this course,

you will learn how to apply economic theory and methodology to real-world decision-making

challenges that are encountered by businesses, governments, and non-profit organizations.

Managerial economics, according to Spencer and Siegelman (2015), is the integration of

economic theory with business practice with the goal of easing decision-making and forward

planning by management.

Managerial economics is a branch of economics that specifies guidelines for making better

managerial decisions. Aside from that, it assists managers in recognizing how economic forces

effect organizations as well as describing the economic implications of managerial behavior. It

bridges the gap between classical economics and decision sciences in order to provide critical

tools for managerial decision making. Managerial economics is the study of how to attain goals

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in the most effective manner. In managerial economics, demand analysis, forecasting, the

production function and cost analysis are all discussed. Other topics include inventory

management, advertising, pricing systems, and resource allocation. When determining the

scope of Managerial Economics, the following considerations should be taken into

consideration (Keisuke, 2018).

The decision-making process is the most essential function in management economics. It

entails the entire process of selecting the most appropriate action from a set of two or more

possibilities to take. The basic function of a business is to make the most profitable use of

limited resources such as labor, cash, land, and other resources. Because the future is

unpredictable, a manager must exercise extreme caution when making decisions. He must

guarantee that the best potential plans are developed in the most efficient manner in order to

reach the intended goal, which is profit maximization

Scope of Managerial Economics

According to Spencer and Siegelman, (2015), The scope of managerial economics is not yet

clearly laid out because it is a developing science. Even then the following fields may be said

to generally fall under Managerial Economics:

1. Demand Analysis and Forecasting

2. Cost and Production Analysis

3. Pricing Decisions, Policies and Practices

4. Profit Management

5. Capital Management

These divisions of business economics constitute its subject matter. Recently, managerial

economists have started making increased use of Operation Research methods like Linear

programming, inventory models, Games theory, queuing up theory etc., have also come to be

regarded as part of Managerial Economics.

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1. Demand Analysis and Forecasting: A business firm is a type of economic

organization that is engaged in the transformation of productive resources into items

that are intended for sale on the open market. 2. Supply Chain Management: A

significant portion of managerial decision-making is based on accurate forecasts of

future demand. Forecasting future sales helps management plan production schedules

and determine how to best utilize available resources. It will assist management in

maintaining or improving the company's market position and profit margins. Demand

research also finds a variety of other elements that influence the demand for a certain

product or service. Management Economics places a high value on demand analysis

and forecasting because it is a strategic tool.

2. Cost and production analysis: The profitability of a company is highly dependent on

its cost of production. A wise manager would generate cost estimates for a variety of

output levels, identify the reasons that are responsible for differences in cost estimates,

and select the output level that minimizes costs while also taking into account the

degree of uncertainty in production and cost estimations. Although engineers are in

charge of the production processes, it is the business manager's responsibility to

conduct a production function analysis in order to reduce waste of materials and time.

Cost control is a critical component of sound pricing procedures. Cost ideas, cost-output

correlations, economics and diseconomies of scale, and cost control are some of the

major subjects covered in cost and production analysis.

3. Pricing decisions, policies and practices: When you are not the sole supplier of a

good in the market, pricing decisions, policies, and practices are extremely important.

According on the market structure, pricing strategies might be oligopolistic,

monopolistic or monopoly market-oriented. Prices are determined in various diverse

markets according to price theory, which describes how prices are determined.

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 Competitive strategy anticipates price decision by taking into account the pricing,

advertising, and marketing tactics of other companies in the market. Price determination

in various market forms, pricing methodologies, differential pricing, product-line

pricing, and price forecasting are some of the main topics covered in this subject.

4. Profit management: Profit estimating and measuring is the most challenging aspect of

managerial economics. Profit earning is the main yardstick to measure the success of a

firm in the long run. Business firms are generally organized for earning profit and in

the long period, it is profit which provides the chief measure of success of a firm.

Economics tells us that profits are the reward for uncertainty bearing and risk taking. A

successful business manager is one who can form more or less correct estimates of costs

and revenues likely to accrue to the firm at different levels of output. The more

successful a manager is in reducing uncertainty, the higher are the profits earned by

him. In fact, profit-planning and profit measurement constitute the most challenging

area of Managerial Economics.

5. Capital management: The issues that arise in connection with a company's capital

investments are possibly the most complex and difficult. Capital management entails

the planning and control of capital expenditure because it involves a significant volume

of money, and because the challenges associated with disposing of capital assets are so

complicated that they necessitate a significant amount of time and effort. The cost of

capital, the rate of return, and the selection of projects are the three most important

themes covered by capital management. Producing a commodity is one thing, but

marketing it is quite another thing entirely. However, the word about the goods should

reach the buyer before he makes the decision to purchase. As a result, advertising is a

critical component of a company's decision-making process. Selling costs are the

expenses incurred for advertising and other sorts of promotional activities that are

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 related to the sale of a product. To determine an advertising budget, there are several

approaches to consider: the Percentage of Sales Approach, the All You Can Afford

Approach, the Competitive Parity Approach, the Objective and Task Approach, and the

Return on Investment Approach.

Conclusion

The numerous factors listed above reflect the major uncertainties that a business enterprise

must contend with, and they are as follows: supply and demand uncertainties; cost and price

uncertainties; profit uncertainties; and capital uncertainty. As a result, we can conclude that the

subject matter of Managerial Economics is concerned with the application of economic

principles and concepts to the adjustment of a commercial enterprise to numerous uncertainties

that it may encounter.

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 REFERENCES

Maria M. (2016). Business Economics, 2nd Edition, Thompson Learning. Description and
chapter-preview links.

Moschandreas, M (2019). Business Economics, 2nd Edition, Thompson Learning. Description

and chapter-preview links.
Carl Shapiro (2017). "The Theory of Business Strategy," RAND Journal of Economics, 20(1), pp. 125-
137.
Keisuke Hirano (2018). "decision theory in econometrics," The New Palgrave Dictionary of
Economics, 2nd Edition. Abstract.
Spencer and Siegelman, (2015), Managerial Economics: Theory and Practice, ch. 13 & 14,
Academic Press. Description.