- Category
- >Economics
- >Financial Analytics
Scope of Managerial Economics
- Ritesh Pathak
- Jan 18, 2021
- Updated on: Nov 21, 2023
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.
Share Blog :
Or
Be a part of our Instagram community
Trending blogs
5 Factors Influencing Consumer Behavior
READ MOREElasticity of Demand and its Types
READ MOREAn Overview of Descriptive Analysis
READ MOREWhat is PESTLE Analysis? Everything you need to know about it
READ MOREWhat is Managerial Economics? Definition, Types, Nature, Principles, and Scope
READ MORE5 Factors Affecting the Price Elasticity of Demand (PED)
READ MORE6 Major Branches of Artificial Intelligence (AI)
READ MOREScope of Managerial Economics
READ MOREDijkstra’s Algorithm: The Shortest Path Algorithm
READ MOREDifferent Types of Research Methods
READ MORE
Latest Comments
EVANSPHILIP189
Sep 04, 2024Amazing Love Spell To Get Back With your Partner and Fix Your Broken Relationship WhatsApp him on +2349161779461 My wife broke up with me 3 months ago, and forced me to sign the divorce papers, and I was completely heartbroken. And I could not get back into any shape emotionally. I Thank God for this astonishing and brilliant spell caster that came to my rescue. Wow! This spell caster has helped me so much. Dr Jakuta guaranteed me an urgent 24hrs spell casting, of which I accepted it. Shockingly! this month my wife called me back with lots of apologies after 48hrs which he assured me, and he did everything possible to withdraw the divorce papers which was previously ongoing with the power of this miracle working spell caster. Some people testified that he brought their Ex lover back, some testified that he restores womb, cure cancer, herpes simplex virus and other sickness, Thank you so so so much Lord for your powerful spells. expressions are not sufficient to say thank you. Email doctorjakutaspellcaster24@gmail. com. You can also WhatsApp him on +2349161779461
EVANSPHILIP189
Sep 04, 2024Amazing Love Spell To Get Back With your Partner and Fix Your Broken Relationship WhatsApp him on +2349161779461 My wife broke up with me 3 months ago, and forced me to sign the divorce papers, and I was completely heartbroken. And I could not get back into any shape emotionally. I Thank God for this astonishing and brilliant spell caster that came to my rescue. Wow! This spell caster has helped me so much. Dr Jakuta guaranteed me an urgent 24hrs spell casting, of which I accepted it. Shockingly! this month my wife called me back with lots of apologies after 48hrs which he assured me, and he did everything possible to withdraw the divorce papers which was previously ongoing with the power of this miracle working spell caster. Some people testified that he brought their Ex lover back, some testified that he restores womb, cure cancer, herpes simplex virus and other sickness, Thank you so so so much Lord for your powerful spells. expressions are not sufficient to say thank you. Email doctorjakutaspellcaster24@gmail. com. You can also WhatsApp him on +2349161779461
ashleygeary5c68b4032d6584a31
Sep 07, 2024Hello all! I am new here. I am 21 years old just got out of college and am making 61K a year. I do not start paying on student loans until March of next year I wanted to try and get ahead of my credit before then. I had mortgage that is $500 a month. I kept up with that no problem. However, I had over $17000 in debt on multiple credit cards (15-20). I know it was a very bad idea. I missed a few payments as of then due to an emergency and it really hit my credit. I was sitting in the high 400s. I have always looked for a way to fix up my credit. I got my credit issues resolved through PINNACLE CREDIT SPECIALIST. He is the only legit hacker that lives up to the hype. After 9 days I contacted PINNACLE CREDIT SPECISLIST, he increased my scores to 800+ across the three-credit board. He also increased my credit profile by deleting all late payments, mortgage, student loan and removed all credit card debts. I sincerely acknowledge their relentless efforts and urge you to contact him for any related issue. Contact info: PINNACLECREDITSPECIALIST@GMAIL.COM OR Call +1 (409) 231-0041.
Susan Bickford
Sep 08, 2024It's A Great News to Celebrate with you Viewer, I am truly living the life I have been looking for after Dr Kachi made me win my Powerball Lottery, I had been playing for a good 8years. It was a friend of mine who directed me to Dr Kachi because my friend Nancy has won the Powerball so many times and I don't know how she got the match six numbers to play and win a very big amount of money, then the last time she won the Mega Millions I told her to tell me the secret on how she win. That's when she started telling me about the powerful Dr Kachi who has been her helper. and she gave me Dr Kachi Text/Call Number:+1 (209) 893-8075 I texted the greatest spell caster Dr Kachi and I told him I wanted to win my Powerball with his spiritual rightful number and he told me I should give him 2hours to get everything done and hopefully Dr Kachi do it, and give me a winning numbers to play my ticket that make me win the prize of $223.3 Million Dollars Powerball lottery Tuesday i bought the winning ticket at the Carlie C’s IGA store in Hope Mills, that changed my life for good today, and Dr Kachi a strong spell caster and trust him when he says the results will manifest it's Truth, God bless you Dr kachi for your kind help also can Email: drkachispellcast@gmail.com or website: https://drkachispellcaster.wixsite.com/my-site
lindawilkinson24001dfc71df1a7b4e9a
Sep 19, 2024Harnessing the power of the Brunoe Quick Hack can be an invaluable tool for recovering lost or inaccessible Bitcoin. This innovative technique, developed by renowned cryptography expert Brunoe Quick Hack, provides a highly effective method for regaining access to Bitcoin wallets and accounts that have become locked or compromised. At the heart of the Brunoe Quick Hack is a sophisticated algorithm that can analyze the complex blockchain data and transaction histories associated with a Bitcoin address, identifying potential vulnerabilities or weak points that can then be exploited to bypass security measures and restore control. The process is lightning-fast, often recovering access to a lost wallet in a matter of minutes, making it an essential resource for Bitcoin users who have found themselves locked out of their funds due to forgotten passwords, hardware failures, or other unforeseen circumstances. Leveraging advanced cryptanalysis and blockchain forensics, the Brunoe Quick Hack meticulously probes every aspect of a Bitcoin account, uncovering hidden pathways and hidden vulnerabilities that can be leveraged to regain access – even in cases where traditional recovery methods have failed. For Bitcoin holders facing the distressing prospect of permanently lost funds, the Brunoe Quick Hack represents a lifeline, a powerful tool that can restore access and retrieve those precious digital assets, allowing users to reclaim what is rightfully theirs. For more information, contact: Website: BrunoeQuickHack.COM Email: Brunoequickhack (AT) Gmail dot com Whtas App + (1) 705-784 -2635 Thank you.
Kurtis Williams
Sep 23, 2024I want to thank all those who have been helping others get their loved ones back with the help of Dr. Odunga. You guys really helped me find the right spell caster. This is about a real spell caster who did a great thing for me. My name is Kurtis Williams. This testimony is about this great spell caster Doctor Odunga who helped me restore my love life back. Me and my wife had a fight and this fight led to us filing a divorce paper with the court and I had made up my mind. My wife was also at the same time furious about the whole issue and my family was broken into two opposite sides. With advice from a good friend of the family I decided to save my marriage and consult a spell caster to save my marriage. I went online into the internet and searched for a real spell caster's testimony and after reading the testimony of Doctor Odunga I knew he was the spell caster needed to save my marriage and my family from being divided. It was a twist of fate when my wife came to me one evening and said she had withdrawn the divorce papers and she didn't want to leave me anymore. She loves me so much. I knew that the spell had worked and my marriage had been saved from jeopardy. This is a real spell caster and I believe there are people who need the help of a spell caster. Why not contact the one and true spell caster to put an end to all your problems and save your love life just like he did save my marriage. Thank you so much doctor for everything you did. If you want him to help you, contact him at Email: odungaspelltemple@gmail.com OR Whats App Him +2348167159012. You can watch my video on youtube through this link too https://youtu.be/5dnlReUb3JU
Kurtis Williams
Sep 23, 2024I want to thank all those who have been helping others get their loved ones back with the help of Dr. Odunga. You guys really helped me find the right spell caster. This is about a real spell caster who did a great thing for me. My name is Kurtis Williams. This testimony is about this great spell caster Doctor Odunga who helped me restore my love life back. Me and my wife had a fight and this fight led to us filing a divorce paper with the court and I had made up my mind. My wife was also at the same time furious about the whole issue and my family was broken into two opposite sides. With advice from a good friend of the family I decided to save my marriage and consult a spell caster to save my marriage. I went online into the internet and searched for a real spell caster's testimony and after reading the testimony of Doctor Odunga I knew he was the spell caster needed to save my marriage and my family from being divided. It was a twist of fate when my wife came to me one evening and said she had withdrawn the divorce papers and she didn't want to leave me anymore. She loves me so much. I knew that the spell had worked and my marriage had been saved from jeopardy. This is a real spell caster and I believe there are people who need the help of a spell caster. Why not contact the one and true spell caster to put an end to all your problems and save your love life just like he did save my marriage. Thank you so much doctor for everything you did. If you want him to help you, contact him at Email: odungaspelltemple@gmail.com OR Whats App Him +2348167159012. You can watch my video on youtube through this link too https://youtu.be/5dnlReUb3JU
EVANSPHILIP189
Sep 24, 2024I’m thrilled to share my incredible experience with Dr Jakuta, a powerful spell caster who helped me reunite with my wife. We were facing numerous issues, and our relationship deteriorated, leading to a heartbreaking breakup. However, with the guidance of Dr Jakuta, whom my friend introduced me to, I followed his advice and, amazingly, my wife returned to me within 24 hours! I’m forever grateful. For those seeking help, you can reach Dr Jakuta at doctorjakutaspellcaster24@gmail.com or WhatsApp him on +2349161779461
deammichael205cc45d4d81271452f
Sep 25, 2024Filed bankruptcy a little more than 3 years ago and have been rebuilding my credit since. Last month my Equifax score from myFICO was at 580. I had a secured loan from Navy fed for $4000 and paid $226.00 a month that was paid off on 8/21 then come September my credit score -21 points WITH (the reason was one of your accounts has decreased by $226.00) the loan paid on time every month never late and was at the end if it term. I have credit cards that are paid on time, or I completely pay off every month, but credit scores are still low, myFICO says my credit utilization is at 9%. I was able to employ the services of PINNACLE CREDIT SPECIALIST who helped me increase my credit scores to an excellent score within 3 days. His really a great hacker. Contact him now via: PINNACLECREDITSPECIALIST@GMAIL.COM Or text +1 (409) 231-0041.
tahishabrown5248c088263d5064ffb
Oct 03, 2024Thanks so much spell caster Eze for helping me settle the crisis I had in my marriage! I literally never thought I and my husband could be happy again but you made it possible. Send him an email: ezeodogwuspellhome@gmail.com also on WhatsApp:+2348138005956.If you’re facing same crisis in your marriage/relationship and he solves other problems too. He is very genuine and straightforward unlike others I came cross.