Nature and Scope of Managerial Economics The most important function in managerial economics is decision-making. How do you think Bill Gates and Warren Buffet were able to make it on the Forbes top millionaires list? Some department have divisions which are mandated to control their funds, these are categorised as sub-votes. The superficial answer is because the former earn a large incomes while the later earn small incomes. Under cost analysis we will take intoaccount determinants of costs, method of estimating costs, the relationship between cost andoutput, the forecast of the cost, profit, these terms are very vital to any firm or business. It is in this part where a brief discussion on the relationship of economic theories and managerial economics is made, emphasis being made on the general decision-making process.
Managerial Economics and Operations Research : Mathematicians, statisticians, engineers and others teamed up together and developed models and analytical tools which have since grown into a specialised subject, known as operation research. The decision as how to spend the money is left to the government through normal budget process. The managerial economist has to undertake an economic analysis of competing firms. Decisions such as pricing strategies targeted to particular market models of monopoly, oligopoly, monopolistic competition, and perfect competition, may help maximize revenues and profits. These decisions are of immense significance for ensuring the growth of an enterprise on sound lines. A business manager is essentially involved in the processes of decision making as well as forward planning.
The understanding of the overall operation of the economic system is very useful to the managerial economist in the formulation of his policies. The large aggregates are total saving, total consumption, total income, total employment, general price level, wage level, cost structure, etc. Goods are bought and sold for cash as well as credit. Generally development expenditure are determined by the government at top level and implemented by the departments. If a decisioninvolves no sacrifices, its opportunity cost is nil. Almost all the leading managerial economists are of the opinion that managerial economics is fundamentally normative and prescriptive in nature.
Personnel decisions cover the areas of manpower planning, recruitment, selection, training and development, performance appraisal, promotion, transfer, etc. Economists wish to know why any particular division occurs in a free-market society and what forces, including government intervention, can cause it to change. No one can deny that the managerial economist contributes significantly to the profitable growth of the firm through his realistic attitude. This function is being done by managerial economics. The basic purpose of the approach is to develop a scientific model of the system which may be utilised for policy making.
The theory may be applied to such problems as how to meet a given demand most economically or how to minimise the waiting period or idle time. Hence, there is need to reconcile the theoretical principles based on simplified assumptions with actual business practice and develop appropriate extensions and reformulation of economic theory. He should be held in the confidence of the management. The same is true of manufactured goods; it is usually possible to produce the same output by several different techniques, ranging from ones using large quantity of labour and a few machines to one using a large quantity of highly automated machines and only a very small number of workers. I impart part time training and development programs. When the budget of the ministry has been approved by the parliament each department has to prepare its action plan which is sent to the ministry of finance. Demand estimation is an integral part of decision making, an assessment of future sales helps in strengthening the market position and maximizing profit.
Instead of explaining what a firm is doing, we explain what it should do to make its decision effective. Economic theory studies only economic aspect of the problem whereas managerial theory studies both economic and non-economic aspects. L, 2005 Economics: Principles, Problems, and Policies 16th edn McGuigan, J. Organisational decisions are those which the executive makes in his personal capacity as a manager. The manufacture and sale of cigarettes and wine may be injurious to health and therefore morally unjustifiable, but the economist has no right to pass judgment on these since both satisfy human wants and involve economic activity. Managerial Economics and Economics : Managerial Economics has been described as economics applied to decision making.
Suppose the firm fixes the profit as Rs. Marketing research is undertaken to understand a marketing problem better. The crisis was prompted by increase defaults in subprime mortgages. After obtaining the desire information or as much information as is economically feasible to obtain, the manger must analyze this information and use it in correspondence with the theoretical and statistical tools available to make the best decision possible under the circumstances. Just as demand theory states that other factors remaining constant a consumer will increase quantity of goods demanded when its price is lower, Public procurement Act requires among other things to select the lowest bidder assuming other things are equal to all bidders, for instance quality and time of supply The process of budgeting in the Government is both top-down and bottom-top depending on the stage of the budget. A more revealing way of looking at the cost, however, is in terms of what other consumption he must forge in order to obtain his bread.
Pricing is also oneof the central functions of an enterprise. But managerial theory has only micro characteristics. Advertising and Promotion Mix Decisions 10. Various micro-economic conceptssuch as demand, supply, elasticity of demand and supply, marginal cost, various market forms,etc. Advertising and Promotion Mix Decisions: The main objective of advertisement is to stimulate or increase sales to all customers—former, present and future. Simply stated managerial economics is applied microeconomics with special emphasis on those topics of greatest interest and importance to managers. Plant Shut Down Decisions 9.
The crisis spread all over the world and has much impacted developing countries than others. Decision making is an integral part of management. It deals with the aspects as how much cash should be available and how much of it should be invested in relation to a choice of processes and projects while making possible the economic feasibility of various production lines. The capital budgeting process takes different forms in different industries. Incremental analysis differs from marginal analysis only in that it analysis the change in the firm's performance for a given managerial decision, whereas marginal analysis often is generated by a change in outputs or inputs.
In respect of this, managerial economics cover the aspects, such as, Profit policies and the techniques of profit planning - Break Even Analysis - also called as cost volume profit analysis - that assists significantly in profit planning and cost control methods with a view to maximize profits of the business. The empirical nature of managerial economics makes its scope wider. In recent years, there is a trend towards integration of managerial economics and Operation Research. Project funding is done by donor countries development partners whether individually or in groups who are interested to assist in specific area which they are interested. For the derivation and exposition of economic analysis, we require a set of mathematical tools. Most of the people are not aware of the existence of some businesses with fantastic economic characteristics like high rate of return on invested capital, substantial profit margins and consistent growth. A complimentary good is that can be used together with another good.