In other words, traditional economic theory enables business decision makers to know what information is necessary to make the decision, and how to process and use that information. Governments should try to obtain the maximum benefit for tax payers in spending their revenues; government agencies can measure their efficiency through cost-benefit analysis. Moreover, these selected characteristics can be known only approximately. There is another way of illustrating the discounting principle. Managerial Economics is Pragmatic practical in outlook 4. Finally, the Chief Executive Officer has to do the best of a bad job of balancing the conflicting goals of production, sales and financial managers. But suppose there is idle capacity in the short run.
That is, managerial economics is an application of that part of microeconomics focusing on those topics of greatest interest and importance to managers. The period during which it is possible to vary some factors and not others is called the short run. So the discounting of those revenues is absolutely essential for making these activities comparable. The micro-economic theory of the demand for labour asserts that the profit: maximising entrepreneur will continue to employ labour so long as the resulting addition to his costs is covered by the addition to his receipts from the sale of his products. Knowledge of macroeconomics is quite often required to be able to predict these events in the economy and understand the likely impact of these changes on business.
Managerial Economics Definition Nature and Scope The Managerial Economics is the branch of economics. Various concepts of managerial economics can be applied to non-business or non-profit institutions. Meaning of Managerial Economics: Economics is concerned with the allocation of scarce resources, having alternative uses, among competing goals or unlimited ends. Most production takes place in business firms. In the word of T. Their characteristics are different: Monopolistically competitive market Monopoly market Large number of small firms:… 1517 Words 7 Pages tickets.
To do any work but to use the same methods and tools in them, which can bring maximum benefit to themselves and at least loss. Microeconomics focuses on the behaviour of individual actors on the economic stage: firms and individuals and their interaction in the markets. In public sectors, the goals may be slightly different from reducing the cost, best use of resources, proper allocation of resources, business and agricultural policies, etc. It is both conceptual and metrical. Secondly, statistical techniques provide the individual firm with methods of measuring the functional relationships vital to decision making.
In fact, through the use of regression technique, managerial economics can make a positive contribution to marketing and sales functions. The alternative to carrying out the project is to invest the money in a safe alternative and the evaluation is designed to ascertain whether the project yields a higher return. Marginalism: Incremental reasoning is closely related to two important concepts of traditional economics, viz. Financial Applications : Most financial decisions such as capital equipment replacement, depreciation and capital budgeting decisions have their roots in the economics of time and uncertainty. The Concept of Time Perspective 3. Various topics in Economic Theory help Business Managers in their functions. How many substitutes are available in the company's niche is also a factor: If two other companies sell a beverage that tastes the same, the firm must either keep the drink price lower or establish strong brand loyalty among consumers.
Therefore, the linear demand function. Yes, they are close competitors and are substitutes because one product is cheaper than the other, so people will buy the cheaper one, even if they are the same product. But in order to produce this output, some extra cost will have to be incurred because the increased production will consume raw- materials, fuel and other inputs. The former refers to the change in total cost resulting from a decision. For this, the managers have to understand and deal with various unknown factors such as the substitutability of capital for labour using computers rather than part-time accountants , the tax implication of such substitution, the economic characteristics of the production process such as diminishing return, return to scale, etc. Statistics : Statistics is important to managerial economics in several ways: Firstly, statistical measurements provide the basis for empirical testing of theory.
The incremental reasoning is used in accepting or rejecting a business proposition or option. The investment will be a huge expense against this differential. E is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management It can also be defined as the application of economic theory Micro and macro economics and decision science tools Mathematical economics and Econometric to find the optimal solution to managerial decision making problems. Decision relating to price and market. The reason is that making an appropriate business decision requires a clear understanding of market conditions, the nature and degree of competition, art fundamentals and the business environment This requires intensive and extensive analysis of the market conditions in the product market, input market and financial market. Motivations, the relation of rewards and aspiration levels, and patterns of influence and authority all these are key factors in the theory of decision making. So the variable cost in activity A not counting the labour cost will be higher.
The problem is to determine the profit-maximizing level of employment for the input, advertising, in… 1633 Words 7 Pages well-being of our society. However, there are similarities and differences. Managerial economics makes use of the concept of price elasticity of demand in order to numerically measure and quantify market sensitivity of demand, i. Its short-term and long-term decisions are affected by the overall macro environment of the country. We can, therefore, conclude that the subject-matter of Managerial Economics consists of applying economic principles and concepts towards adjusting with various uncertainties faced by a business firm.
How should limited capital be allocated? Likewise, giving necessary financial support to other departments is the headache of the financial manager. This has two aspects; first, it tells what aims and objectives a firm should pursue; and secondly, these having been defined, it tells how best to obtain these objectives in particular situations. Why do we study the subject at all? What should be the level of output and price? In this situation an optimal use of its resources demands that the management not only determine the contribution of each product and of products that might be introduced in the product mix but also determine how much of the opportunity cost of increasing the output of one product is in terms of the reduction of the contributions of other products. Its sales have averaged about 6,000 units per month during the past year. If there is scarcity but no alternatives, choice making is impossible and the problem is not economic in nature; if there are alternatives but no scarcity goods or resources are free economics is not required. Theory of the firm 3. However, the principles may be used to assess the true worth of advertising.
The most direct effect of a requirement to install new pollution control equipment would be an increase in the operating cost component of the valuation model. Thus, this is the ideal and policy science. A hospital may seek to treat as many patients as possible at adequate medical standards with its limited physical resources physicians, Nurses, beds e. His opportunity cost would then be Rs. But their virtue lies in the fact that they allow the analyst to understand, explain and predict the future course of events.