Q.1. Why is Managerial Economics being considered a central part of each functional area of management ? Ans. Definition :
Managerial economics is a social science discipline that combines the economics theory, concepts and known business practices in order to make the process of decision making easy. It is a very useful concept for every manager that is planning for the future. A key area of managerial economics is the theory of a firm that involves the best mix of the scarce resources to maximize profits within the firm.
APPLICATION OF MANAGERIAL ECONOMICS :
Managerial economics can be used to achieve virtually all the goals of a business organisation in an efficient manner. Typical managerial decision-making may involve one of the following issues: • Decisions pertaining to the price of a product and the quantity of the commodity to be produced
• Decisions regarding manufacturing product/part/component or outsourcing to/purchasing from another manufacturer
• Choosing the production technique to be employed in the production of a given product • Decisions relating to the level of inventory of a product or raw material a firm will maintain
• Decisions regarding the medium of advertising and the intensity of the advertising campaign
• Decisions pertinent to employment and training
• Decisions regarding further business investment and the modes of financing the investment.
It should be noted that the application of managerial economics is not restricted to profit-seeking business organizations. Tools of managerial economics can be applied equally well to decision problems of nonprofit organizations. Mark Hirschey and James L. Pappas cite the example of a nonprofit hospital making use of the managerial economics techniques for optimization of resource use. While a nonprofit hospital is not like a typical firm seeking to maximise its profits, a hospital does strive to provide its patients the best medical care possible given its limited staff (doctors,...
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