Category
>Economics
>Financial Analytics

Scope of Managerial Economics

Ritesh Pathak
Jan 18, 2021
Updated on: May 27, 2021

We all know economics as a subject being equipped with various concepts. Apart from being a subject, concepts in economics also act as a tool that make organizations capable of surviving in a market.

Managerial economics is one such concept of economics. It can be defined as the incorporation of economic theories with business practices. This makes the process of decision making easy for organizations, as they can leverage the concepts of economics to change the dynamics of the market.

Managerial economics is considered as an essential scholastic field. This field of economics exhibits many characteristics that make it crucial for businesses. Managerial economics is in no way different from a science as it fulfills the criteria of being a science.

Managerial economics is used by organizations to solve multiple business problems. It is also reckoned as the scope of managerial economics. Ready to learn? Let’s get started about the scope of managerial economics and understand its use in the business world.

What is Managerial Economics?

Managerial economics is a subject that was first introduced by Joel Dean in 1951. This branch of economics is essentially concerned with the application of various economic concepts in decision-making.

We can also look at managerial economics as economics that is applied to problem-solving at the level of the firm. Managerial economics works as a bridge between economics theories and business practices. It is based on economic analysis for identifying problems, organizing information, and evaluating alternatives.

Resource allocation is a major challenge for any organization. Managerial economics involves an analysis of the allocation of the resources available to a firm, or a unit of management among the activities of that unit. It makes use of economic theories and concepts and assists managers to make rational decisions.

What is the Scope of Managerial Economics?

Managerial economics is a developing subject and its empirical and perspective nature widens its scope. It works as a tool for businesses that is used to understand the functioning of a market and also how to sustain themselves in an ever-changing market.

From analyzing demands and forecasting future demand to capital management, managerial economics provides help with almost everything. It also helps companies in Pricing Decisions, Policies, and Practices, cost and production analysis, and manage their profits.

Recommended blog - Corporate Governance

1. Demand Analysis and Forecasting

A firm relies on converting inputs into outputs and generates revenue from them. A clear and accurate estimation of demand ensures a continuous efficiency of the firm. Several external factors like price, income, affect the demand that need to be analyzed.

Upon analyzing these factors affecting the demand for a product, managers can decide on the production. After estimating the current demands, managers move ahead to predict future demands for the product. This is referred to as demand forecasting.

The ability to forecast demands allows the management to capitalize on the opportunities available and strengthen the market position of the firm. During the process of demand analysis, the management also gets to know about the external factors affecting it and hence work on them to nullify any negative effect.

2. Cost and Production Analysis

Cost Analysis is yet another function of Managerial economics. A company makes a profit in two ways: by increasing the demand or by reducing the cost. The determinants of assessing costs, the connection between cost and yield, the gauge of cost and benefit are indispensable to a firm.

You can also sneak a peek at our blog on what is inflation.

Cost analysis is an important exercise for any company. A component of cost vulnerability always exists since all the elements deciding expenses are not generally known or controllable.

By taking the help of managerial economics, the management of a company identifies the factors causing a variation in costs. The company then uses the cost estimates in their decision making like pricing a product.

Production analysis is more of a physical exercise. It involves examining the factors of production, also known as inputs, and obtaining the best combination so as to get the least cost combination.

In case of price rise in the inputs, the management looks beyond and tries out the alternatives. The analysis helps them get instant ideas in such uncertain situations.

The topics covered during cost and production analysis are production function, least-cost combination of factor inputs, factor productiveness, returns to scale, cost concepts and classification, cost-output relationship, and linear programming.

3. Pricing Decisions, Policies, and Practices

Among the 4Ps of marketing, Price finds an important place. For any firm, Pricing is a very important aspect of Managerial Economics as a firm's revenue earnings largely depend on its pricing policy. However, it is a bit challenging as other players are competing in the same price segment.

When pricing a product is done, the costs of production are also taken into account. Managerial economics helps the management to go through all the analyses and then price a product. In an oligopoly market condition, the knowledge of pricing a product is essential.

Scope of Managerial Economics

4. Capital Management

Every asset a business owns is known as its capital. Capital management thus becomes an important practice.

Planning and control of capital expenditures is a basic executive function. It involves the Equi-marginal principle. The prime objective is to ensure the sustainable use of capital. This means that funds should be kept at a bay when the managerial returns are less than in other uses.

The main topics dealt with during capital management are Cost of Capital, Rate of Return, and Selection of Projects.

5. Profit Management

A business firm is an organization designed with an intention to make profits and profits reflect the success of a company. After all the analyses, it all rolls down to profits.

To maximize profits a firm needs to manage certain things like pricing, cost aspects, resource allocation, and long-run decisions. This would mean that the firm should work from the very beginning, evaluate its investment decisions and frame the best capital budgeting policies. Profit management is considered as a difficult area of managerial economics.

The important aspects covered under this area are: nature and measurement of profit, profit policies, and techniques of profit planning like break-even analysis, cost-volume-profit analysis, etc.

Tools Used in Managerial Economics

Managerial economics makes use of different economic tools. The concepts of micro vs macroeconomics are applied for effective decision-making. Let’s explore the uses of some economic tools in managerial economics:

Economic Tools used in Managerial Economics

1. Opportunity Cost Principle

The Opportunity Cost Principle is concerned with the cost of the next best alternative of the good we are buying or opting for. The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else.

This principle has significant use in the process of decision making. Comparing the opportunity cost of one decision with another one gives an idea about the ideal decision.

2. Incremental Principle

Managerial economists make use of the incremental principle in the theories of consumption, product pricing, and distribution.

The principle states that the firm can maximize its profit if it is able to equate its marginal cost with the marginal revenue it generates. This helps managers decide on the expansion of their business, as it guides them to keep expanding until they reach the desired point: when marginal costs stand equal to the marginal revenue.

Recommended blog - Mutual funds

3. Principle of Time Perspective

The principle of time perspective states that a decision should take into account both the short and long-run effects on revenue and costs. It should maintain the right balance between the short-run and the long-run perspectives.

This principle helps managers in decision-making in output, prices, advertising, and expansion of the business.

4. Discounting Principle

The discounting principle states that if a decision taken today affects the cost and revenues of the future, those costs and revenues must be discounted today to avoid any comparisons with alternatives.

This economic tool is used by managers in deciding on the prices of the product and also in investment decisions.

5. Equi-Marginal Principle

The Equi marginal principle states that consumers will choose a combination of goods to maximize their total utility. The principle works on the basic idea of human nature. We tend to compare the utility of two products and opt for those which are efficient.

In a similar fashion, managers in a firm would want to utilize all their resources to the same extent.

Examples of Managerial Economics

Different tools of managerial economics can be used to achieve all the goals of a business organization in an efficient manner. The examples of managerial economics applications are:

Managerial economics finds its use in deciding the price of a product.
It also helps firms to decide on the manufacturing of a product or to purchase it from another manufacturer.
To decide on the production technique to be used in the manufacturing of a product
It also helps in inventory management. A firm can decide on the level of inventory it will maintain of a product or a raw material.
Decide on the advertising media and the intensity of advertising campaigns.
Managerial economics is used by businesses to decide on employment and training.
After all the analyses, the management looks at the opportunities for further investment.

Latest Comments

foxj9981

Mar 18, 2023

BUY PAIN RELIEVERS PILLS,SLEEPING PILLS,SEX ENHANCERS PILLS,ECSTASY PARTY PILLS ETC WhatsApp at:+90 546 623 18 62 We have Narcotics,Adderall, Roxicodone, Xanax, Oxycontin, Hydrocodone, Roxies, Percocets, Hydros, Actavis, Vicodin, Adderall, Ritalin, Suboxone, Dilaudid, Opana ER,Xenical, Alprazolam,ADHD, 💉💊🚬 And Many More. We ship all orders discreetly and we guarantee safe delivery for all packages. Use Coupon Code Save15 and get up to 20% off Fastest and Free Delivery Purchase medicine Without a prescription with Overnight Shipping >> Secured Delivery >> Fast delivery >> provide Tracking number >> Overnight delivery >> Shipping to all location >> Bulk order discount FOR ANY INQUIRES REACH US VIA; Text or call:+1(707)742-3597 WhatsApp at:+90 546 623 18 62 Wickr App:....Genlabs Telegram: +1(707)742-3597 EMAIL : Medsplugging@gmail.com PRODUCT LINK- https://www.undergroundmedsplug.com/

wernerhermann85

Mar 19, 2023

My heartfelt gratitude goes to PINNACLE CREDIT SPECIALIST. I went through divorce recently and let my wife and kids stay in our marital home for a year before we sold it. A guy named Hinds spoke well about a good credit expert that helped him remove medical bills and raised his score to 801 in less than 6 days. I emailed him on PINNACLECREDITSPECIALIST@GMAIL.COM and he responded ASAP asking me to text him on his personal number +1 (323) 406 1225 for further discussion. Well I did and eventually got started with the project with him. I was amazed after a few days he pulled through for me and removed all my late payments and derogatory items raising my score to 808. I got the mortgage and all thanks to him and his team for helping me. Contact him with the above emails and phone number for your credit repair.

cindybyrd547

Mar 19, 2023

Get your ex Love back with the help of a real spell caster who saved my marriage. I'm Josie Wilson from USA. I was at the verge of losing my marriage when Dr.Excellent stepped in and rescued me. My husband had filed for divorce after an unending dispute and emotional abuses we both suffered due to misunderstandings. He left the house and refused to come back. I sought for Dr.Excellent knowing I don’t wish to suffer another penury due to divorce cases and losing my man. I complied with his work procedures which was very easy and he worked for me. The love and connection between me and my partner was restored and he came back and got the divorce case canceled. It’s all for a fact that Dr.Excellent is honest and transparent in helping people and you too reading this can get the solution you seek in restoring joy and happiness in your marriage or relationship. contact Dr.Excellent for help now..Here his contact. WhatsApp: +2348084273514 ,Email: Excellentspellcaster@gmail.com Website:https://drexcellentspellcaster.godaddysites.com

Clara James

Mar 19, 2023

REAL LOVE SPELL CASTER PRIEST WISDOM THAT HELP ME SAVE MY RELATIONSHIP.TEXT OR ADD HIM UP ON WHATSAPP: +2348124644470 My name is CLARA JAMES .I want to give thanks to PRIEST WISDOM for bringing back my ex husband.No one could have ever made me believe that the letter I’m about to write would actually one day be written. I was the world’s biggest skeptic. I never believed in magic spells or anything like this, but I was told by a reliable source (a very close co-worker) that Trust is a very dedicated, gifted, and talented person,It was one of the best things I have ever done. My love life was in shambles; I had been through two divorces and was on the brink of a third. I just couldn't face another divorce, and I wanted to try harder to make our relationship work, but my husband didn’t seem to care. and he broke up with me again . I was confused and did not know what to do again, rather they got in contact with PRIEST WISDOM.He did a love spell that made my husband come back to me. We are now very much happy with ourselves. PRIEST WISDOM makes him realize how much we love and need each other .This man is for REAL and for good . He can also help you to fix your broken relationship. I had my husband back! It was like a miracle! He suddenly wanted to go to marriage counseling, and we’re doing very, very well , in our love life . contact email Supernaturalspell@yahoo.com or text or add him up on whatsApp at: +2348124644470 his web page https://supernaturalspell21.blogspot.com/ or go to his page https://web.facebook.com/PRIESTWISDOM11

Clara James

Mar 19, 2023

cindybyrd547

Mar 20, 2023

Juliana Davis

Mar 20, 2023

i want to share to the whole world how Dr Kachi the Great of all the Spell Caster, that helped me reunite my marriage back, my Ex Husband broke up with me 3months ago, I have been trying to get him back ever since then, i was worried and so confused because i love him so much. I was really going too much depressed, he left me with my kids and just ignored me constantly. I have begged him for forgiveness through text messages for him to come back home and the kids crying and miss their dad but he wont reply, I wanted him back desperately. we were in a very good couple and yet he just ignores me and get on with his life just like that, so i was looking for help after reading a post of Dr Kachi on the internet when i saw a lady name SHARRON testified that Dr Kachi cast a Pure love spell to stop divorce. and i also met with other, it was about how he brought back her Ex lover in less than 24 hours at the end of her testimony she dropped his email, I contacted Dr Kachi via email and explained my problem to Dr Kachi and he told me what went wrong with my husband and how it happen, that he will restored my marriage back, and to my greatest surprise my Ex husband came back to me, and he apologized for his mistake, and for the pain he caused me and my children. Then from that day our marriage is now stronger than how it was before, Dr Kachi you're a real spell caster, you can also get your Ex back and live with him happily: Contact Email drkachispellcast@gmail.com his Text Number and Call: +1 (209) 893-8075 OR Contact his Website: https://drkachispellcast0.wixsite.com/my-site

claramorgan608

Mar 20, 2023

I know a lot of people reading this Testimony now will be harboring some doubave tried it and it worked as claimed for me so, I think I should extend the guarantee to you Others Suffering from Herpes Virus and Other Diseases/infection. Dr Edu Ehime Herbal Medicine Has been Working Wonders for a lot of people around the world, You too Can Testify. Contact him WhatsApp him on +2349123782047Facebook page https://www.facebook.com/Ehimeherbalist

Juliana Davis

Mar 21, 2023

baileybaker660

Mar 23, 2023

Hi all I’m Bailey. I had a lot of debt before now. Credit card debt, collectors have been blowing up my phone nonstop. I’m so stressed out that my depression and anxiety multiplied tenfold. I’m just completely overwhelmed ever since I came in contact with PINNACLE CREDIT SPECIALIST private company who cleared my debts, removed all negative items from my credit report including hard inquiries and increased my credit score to 811 excellent score in less than 6 days. I must confess PINNACLE CREDIT SPECIALIST are the best. I know so many other persons are in this situation, you can contact him via: PINNACLECREDITSPECIALIST@GMAIL.COM or Text: + (323) 406 1225 and please don’t forget to mention my name to them. THANKS

Scope of Managerial Economics

What is Managerial Economics?

What is the Scope of Managerial Economics?

1. Demand Analysis and Forecasting

2. Cost and Production Analysis

3. Pricing Decisions, Policies, and Practices

4. Capital Management

5. Profit Management

Tools Used in Managerial Economics

1. Opportunity Cost Principle

2. Incremental Principle

3. Principle of Time Perspective

4. Discounting Principle

5. Equi-Marginal Principle

Examples of Managerial Economics

Share Blog :

Trending blogs

Latest Comments

foxj9981

wernerhermann85

cindybyrd547

Clara James

Clara James

cindybyrd547

Juliana Davis

claramorgan608

Juliana Davis

baileybaker660