Business owners and managers can utilize this tool to help mold pricing and output decisions, guide the production process or even affect product quality choices. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the subject all about? A paper presented in the seminar on International Accounting Standards and Ngowi, H. That is to say, price reduction will have two effects, of which one is favourable to the firm and the other is unfavorable. Executiv … es often end up referring to wrong sources, which lacks scientific rigor and credentials in its finding, for arriving critical decisions. Evaluation of managerial performance: Decisions can evaluate managerial performance. Relationship of the Study of Managerial Economics to Business Study of Managerial Economics helps in enhancement of analytical skills, assists in rational configuration as well as solution of problems.
For example, in case of the problem mentioned above, if it is identified that the problem of declining profits is due to be use of technologically inefficient and outdated machinery in production. Managerial economics is basically concerned with how individual economic units behave, make decisions, and respond to changes in the external macro environment of business. Whether the company has to venture into new products. But they have a common interest: they have the need for some reliable though not totally perfect or accurate estimates of the demand for the product being sold by the firm. The last part of the paper discusses the applicability of economic theories in decision making under the conditions of budget constraints and global financial and economic crisis.
Quasar has to determine the supply and demand for the Neutron notebooks before launched in retail stores. The Environment of the Firm : One of the goals of this title is to get the reader to look at the world of microeconomics both through the looking glass of an economist and from the perspective of a business person. A wise manager would prepare cost estimates of a range of output, identify the factors causing are cause variations in cost estimates and choose the cost-minimising output level, taking also into consideration the degree of uncertainty in production and cost calculations. Similarly, managerial economics provides production and marketing rules that permit the company to maximize net profits once it has achieved growth or market share objectives. It makes use of economic theory and concepts. The main topics dealt with under capital management are cost of capital, rate of return and selection of projects. Hospitals often attempt to handle more patients and give better care at lower cost by applying economic techniques.
It is normative rather than positive i. Managerial economics plays an active role in the evaluation and assessment of certain managerial policies. Within a business enterprise, these five types of decisions are always considered by the marketing and sales departments, the production department as also the finance and accounting department. We may well start with a few definitions. It is the application of economic theory and analysis to practices of business firms and other institutions.
Factors Influencing Management Decisions The macroeconomic concepts that are directly or indirectly related to management decisions include analysis of national income, business cycles, monetary policy, fiscal policy, central banking, public finance, economic growth, international trade, balance of payments, protectionism, free trade, exchange rates and international monetary system. Economic principles, especially managerial economics, can give you an advantage. In other words, a major portion of the economic theory to be used in this text can be fruitfully utilized in a wide variety of decision-making situations. This branch of economics plays the role of mediator between the theories of economics and practical logics of economics. It may be further noted that for the choice of an optimal solution to the problem, a manager works under certain constraints. Managerial Economics may be defined as the study of economic theories, logic and methodology which are generally applied to seek solution to the practical problems of business. This requires some sort of contingency planning.
Managerial economists apply the models. It is also known as cost volume profit analysis. The data and information so obtained can be used to evaluate the outcome or results expected from each possible course of action. Business decisions include many vital decisions like whether a firm should undertake research and development program, should a company launch a new product, etc. But measurement of productivity in practice is no doubt a complex exercise, if not totally impossible. The managerial economics enables the contribution of the profitable business growth with effective business solutions of the problems that can change the economic scenario of the business opportunities that are feasible for business organizations.
The following is the entire process of managerial decision making. The manager needs to carefully formulate all such questions in order to weigh the attractive alternatives. Defining the nature of the problem is important because decision making is after all meant for solution of the problem. It deals with the use of economic concepts and principles of business decision making. I think these are the main process in managerial economics. Relation of Managerial Economics to Other Branches of Learning and Others. The impact of goods production, marketing, and technological changes highly contribute to the complexity of the business environment.
Are the future benefits worth the present capital? It recognizes the costs of collecting and processing information, the problem of communication, and the need to reconcile the diverse objectives of people and organizations. Likewise, in order to achieve production efficiency, a firm may be required to utilize more capital than would be necessary if the objective was minimizing the cost of raising capital. How should limited capital be allocated? Meaning of Managerial Economics 4. Products must be produced and resources must be allocated. In managerial economics the stress is on the process of resource allocation and decision making within the firm which is thought to be the most efficient form of organizing production. Would you say that these two firms are very close competitors? Regarding criteria, the corporate culture and goals of the organization should be considered also. It is goal oriented i.
For instance, increasing advertising or sales promotion expenditure or undertaking investments involve economic decisions. In general it is assumed that in most firms share holders and managers have a common goal profit-maximization. For example, to understand concentration of economic power, one must understand the Lorentz curve, to understand predatory pricing, it is necessary to understand the meaning of market power and the logic of average cost mark up pricing. Or, it may be entrusted with the responsibility of attaining a certain goal at the minimum possible cost. This also helps to analyze the impact of alternative courses of action and evaluate the results of the model. It lessens the gap between economics in theory and economics in practice.