Price Elasticity of Supply
Just like the law of demand, the law of supply also explains the qualitative relationship between price and supply. Qualitative relationships do not reveal the complete picture. For instance, it helps only up to a certain point to know that the quantity supplied as well as price move in the same direction. However, this is […]
What is Results Only Work Environment (ROWE) and Why is it Important ?
Traditional Workplace Time Requirements Ever since the modern corporation evolved into its present form, it has become the norm for employers to “clock” the number of hours worked by their employees so that they can keep track of the work done as well as ensure attendance for the prescribed working hours. Indeed, the tracking and […]
Applied Econometrics – Steps to Carry Out an Empirical Study
Operating a business has become far more challenging than ever it was. Increasing competition, looming economic crisis, mounting operating costs and declining profit margins have added to the woes of business owners and managers. They are often required to make predictions from various types of data, to support business strategies and fight competition. In such […]
Quantitative Easing and Income Inequality
Ever since quantitative easing has been implemented as a mainstream policy, Central banks have had to fend off charges that it is leading to increased income inequality. The central banks have been alleging that quantitative easing has not created more income inequality. They often cite the low inflation figures as proof of this claim. In […]
Choosing the Right Counterparty in Real Estate
The average person assumes that buying real estate from an individual is about the same thing as buying it from a developer. However, that is not the case. Even though the property under consideration is the same, the motives and capabilities of the buyer vary vastly. As a result, the deals made will be very […]
Managerial Economics deals with allocating the scarce resources in a manner that minimizes the cost. As we have already discussed, Managerial Economics is different from microeconomics and macro-economics.
Managerial Economics has a more narrow scope - it is actually solving managerial issues using micro-economics. Wherever there are scarce resources, managerial economics ensures that managers make effective and efficient decisions concerning customers, suppliers, competitors as well as within an organization.
The fact of scarcity of resources gives rise to three fundamental questions-
To answer these questions, a firm makes use of managerial economics principles.
The first question relates to what goods and services should be produced and in what amount/quantities. The managers use demand theory for deciding this.
The demand theory examines consumer behaviour with respect to the kind of purchases they would like to make currently and in future; the factors influencing purchase and consumption of a specific good or service; the impact of change in these factors on the demand of that specific good or service; and the goods or services which consumers might not purchase and consume in future.
In order to decide the amount of goods and services to be produced, the managers use methods of demand forecasting.
The second question relates to how to produce goods and services. The firm has now to choose among different alternative techniques of production. It has to make decision regarding purchase of raw materials, capital equipments, manpower, etc.
The managers can use various managerial economics tools such as production and cost analysis (for hiring and acquiring of inputs), project appraisal methods( for long term investment decisions),etc for making these crucial decisions.
The third question is regarding who should consume and claim the goods and services produced by the firm. The firm, for instance, must decide which is it’s niche market-domestic or foreign? It must segment the market. It must conduct a thorough analysis of market structure and thus take price and output decisions depending upon the type of market.
Managerial economics helps in decision-making as it involves logical thinking. Moreover, by studying simple models, managers can deal with more complex and practical situations. Also, a general approach is implemented.
Managerial Economics take a wider picture of firm, i.e., it deals with questions such as what is a firm, what are the firm’s objectives, and what forces push the firm towards profit and away from profit. In short, managerial economics emphasizes upon the firm, the decisions relating to individual firms and the environment in which the firm operates.
It deals with key issues such as what conditions favour entry and exit of firms in market, why are people paid well in some jobs and not so well in other jobs, etc. Managerial Economics is a great rational and analytical tool.
Managerial Economics is not only applicable to profit-making business organizations, but also to non-profit organizations such as hospitals, schools, government agencies, etc.
Your email address will not be published. Required fields are marked *
Currency Wars and the Making of the Next Financial Crisis in the Global Economy
February 12, 2025
Consumer Demand – Demand Curve, Demand Function & Law of Demand
February 12, 2025
Companies Need to Create Long Term Value to Survive the Uber Competitive Market
February 12, 2025
