Scope of Managerial Economics
Economics has two major branches namely Microeconomics and Macroeconomics and both are applied to business analysis and decision-making directly or indirectly. Managerial economics comprises all those economic concepts, theories, and tools of analysis which can be used to analyze the business environment and to find solutions to practical business problems. In other words, managerial economics is applied economics The areas of business issues to which economic theories can be applied may be broadly divided into the following two categories: •Operational or Internal issues; and • Environmental or External issues Micro Economics Applied to Operational Issues
Operational problems are of internal nature. They arise within the business organization and fall within the perview and control of the management. Some of the important ones are: • Choice of business and nature of product, i.e., what to produce; • Choice of the size of the firm, i.e., how much to produce; • Choice of technology, i.e., choosing the factor combination; • Choice of price, i.e. ,how to price the commodity; • How to promote sales, i.e., sales promotion measures; • How to face price competition; • How to decide on new investment; • How to manage profit and capital; • How to manage inventory, i.e., stock of both finished goods and raw material The above mentioned issues fall within the ambit of micro economics; therefore, the following constitute the scope of managerial economics: Theory of demand
• Consumer behaviour- maximization of satisfaction • Utility analysis • Indifference curve analysis • Demand analysis and elasticity of demand • Demand forecasting and its techniques/methods Theory of production and production decisions
• Production function [Inputs and output relationship] in short-run and long-run • Cost and output relationship in short-run and long-run • Economies and diseconomies of scale 7
• Optimum size of firm and determining the size of firm. •...
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