Real Estate Investing Myths
Amongst all investment options available, real estate is the one that buyers tend to get emotionally attached with. For this reason, people rationalize their emotional decisions with the help of many myths about real estate investing. If one wants to avoid getting entangled in the emotional aspects of real estate investing and make financially sound […]
Problems: Measurement of Inflation
There is a general saying in the business world, “What cannot be measured cannot be managed!” This is true of inflation as well. Hence, governments are supposed to constantly measure the amount of inflation in the economy. The idea is to have a control chart approach to keep inflation in check. This means that the […]
GDP and Depleting Natural Resources
The GDP system’s absurdities do not end with social evils. Mindlessly following this system has also wrecked havoc on the environment. Many arguments have been made against the GDP system from an environmental point of view. There is no questioning the fact that the resources of earth have been severely depleted in the recent past. […]
Transaction Costs in the Real Estate Market
Flipping properties may sound like a good idea to the novice real estate investor. However, anyone who has even engaged in real estate transactions even once or twice knows that there are significant costs associated with real estate transactions. These costs are called “transaction costs” because they are triggered when a real estate transaction takes […]
Components of GDP
We have spoken in great detail about GDP. By now, we are aware of the dangers of setting GDP maximization as a country’s prime economic objective. To study more about the GDP we need to have a closer look at what it is made up of i.e. its components. Once we know the components and […]
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.
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