Master of Business Economics [M.B.

E] Semester ± I Role & Responsibility Of Managerial Economics


Introduction Managerial Economics
y Managerial Economics is economics applied in Decision making. It is

based on economic analysis for identifying problem, Organising information and alternative.

y According to McNair and Meriam

Managerial Economic is the use of economic mode of thought to analyses business situation.
y In the words of spencer and Siegelman

Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward plan by management.
y Watson defines it as price theory in the service of business executive.

Role of managerial economist

Specific decisions

General tasks

External factors 1Production scheduling 2Demand forecasting 3Market research 4Economic analysis 5Investment appraisal 6Security mgt. analysis 7Advice on foreign exchange mgt. 8Advice on tread 9Pricing decision 10Analyzing & forecasting factors 1Economic Condition 2Demand for the product 3Influencing the input cost 4Market condition 5Firm¶s share in market 6Economic policies

Internal factors

1 Production, sales, inventory schedules decision 2Provide pricing & profit policies 3Investment decision

Role of A managerial economist in Business
y Task of making SPECIFIC DECISIONS by managers y GENERAL TASK of managers to use readily available information

to make a decision or carry out a course of action that furthers the goals of the organization take,

y There are several specific decisions that managers might have to

For Example Whether or not to close down a branch of a firm that has recently been unprofitable;

After conducting a survey of British industry, Alexander and Kemp came to the conclusion that the managerial economist undertakes the following specific functions:
y y y y y y y y y y

Production scheduling, Demand forecasting, Market research, Economic analysis of the industry, Investment appraisal, Security management analysis, Advice on foreign exchange management, Advice on trade, Pricing and the related decision Analysing and forecasting environmental factors.

y Economic theory helps decision-maker to know what information is necessary to make an intelligent decision to find the correct solution to a problem and to learn how to process and use that information. y Business is influenced by two sets of decision factors y External Factors & y Internal Factors

External Factors
y The general economic condition of the economy external factor is the general economic condition of the economy, such as the level and growth of national income, regional income distribution, influence of international factors on the domestic economy, the business cycle etc.managerial economist must obtain and process information with regard to these changes. y The prospects of demand for the product. the prospect of demand for the product. Is there a change occurring in the purchasing power of the public in general or in some particular regions? Is this change in purchasing power a result of changes in population and migration or is it due to changes in real income of the people as a result of price level changes?A managerial economist tries to find their answer and advices the firm accordingly.

y Find out if there is anything which is influencing the input cost of the firm. the managerial economist also tries to find out if there is anything which is influencing the input cost of the firm. For example, What about the cost of labour in different regions and for different operations? What about the credit condition in the market?

y Market condition of raw material and finished product.

the market condition of raw material and finished product is also a subject of study by the managerial economist. He has to understand the nature of the market from which the firm is buying its raw materials and of the market where it is selling its output.
y The expansion of the firm s share in the market.

managerial economist can also help in the expansion of the firm s share in the market. He is to find out opportunities and the policies which help in the expansion of the firm s share in the local and internal markets. This he can do by understanding the nature and trend of demand.
y To keep in touch with the government s economic policies.

managerial economist has also to keep in touch with the government s economic policies and the center bank s monetary policies, annual budgets of the government, etc.

Internal factors
y He helps in deciding about the production, sales and inventory

schedules of the firm. He not only provides information regarding their present level but also forecasts their future trend.
y A managerial economist is used to provide the pricing and profit

policies. as the present-day firms are often multi product firms, a successful managerial economist tries to find for the firm the most profitable output mix and the best prices for its various output, given the market conditions.
y The firm also needs the help of managerial economist for its

investment decision. For this, He needs to forecast the return on investment and the cost that the firm incurs by taking up the investment.

y He not only helps in internal management but also analyze external factor and advice the firm regarding their likely effect. y The managerial economist also undertakes the job of economic intelligent, which involves obtaining and processing information regarding the lightly effects of changes in government policies, tax rates structure, exchange and tariff rates, etc. y Successful managers know how to pick out the useful information from the vast amount of information they receive. In all these roles of manager, the knowledge of managerial economics is extremely helpful.

y His objectives must coincide with that of the business y Try to make as accurate forecasts as possible y He must be ready to take up challenging tasks.

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