Scope of Managerial Economics Essay

stinting science has two major branches namely Micro policy-making economy and Macro economic science and both be applied to business epitome and decision-making directly or indirectly. Managerial economics comprises all those economic concepts, theories, and tools of analysis which bay window be used to dismember the business environs and to find solutions to practical business problems. In otherwise words, managerial economics is applied economics The areas of business issues to which economic theories can be applied may be broadly divided into the following(a) two categories Operational or Internal issues and Environmental or foreign issues Micro Economics Applied to Operational IssuesOperational problems are of essential nature. They arise within the business organization and decay within the perview and temper of the management. Some of the important ones are Choice of business and nature of product, i.e., what to begin Choice of the sizing of the firmly, i.e., how much to produce Choice of technology, i.e., choosing the factor conspiracy Choice of price, i.e. ,how to price the commodity How to promote sales, i.e., sales promotion measures How to present price competition How to decide on new enthronisation How to manage dinero and working keen How to manage inventory, i.e., stock of both finished goods and raw(prenominal) material The above mentioned issues fall within the ambit of micro economics therefore, the following constitute the scope of managerial economics guess of requirement Consumer behaviour- maximization of satisfaction Utility analysis Indifference curve analysis Demand analysis and elasticity of demand Demand forecasting and its techniques/methods Theory of production and production decisions Production function Inputs and output relationship in short-term and long-term Cost and output relationship in short-run and long-run Economies and diseconomies of scale 7 Optimum size of firm and determining th e size of firm. Deployment of resources labour and capital for having optimum combination of factors of production. Analysis of market structure and pricing conjecture Determination of price under different market conditions expenditure distinction Multiple pricing policy Advertising in competitive markets polar pricing policies and practices Profit analysis and profit management Nature and types of profit Profit planning and policies Different theories of profit Theory of capital and investment decisions Cost of capital and return on capital-choice of investment projects Assessing the efficiency of capital Most efficient allocation of capital Capital budgeting Macro Economics Applied to Business EnvironmentEnvironmental issues relate to general environment in which business operates. They are related to overall economic, kind and political environment of the surface area. The following are the main ingredients of economic environment of a country The type of econ omic system- capitalist, socialist or mixed economic system. General trends in production, employment, income, prices, saving and investment. Volume, composition and direction of foreign trade. coordinate of and trends in the working of financial institutions- Banks, NBFCs, insurance companies an other financial institutions. Trends in labour and capital market. Economic policies of the government- Fiscal policy, Monetary policy, EXIM- policy, Industrial policy, Price policy etc. accessible factors- value system, property rights, customs and habits. Social organizations- Trade unions, consumer unions and consumer co-operatives and producers unions. Political environment is constituted of the following factors Political system-democratic, socialist, communist, bossy or any other type. States attitude towards mystical sector Policy, role and working of public sector Political stability. The stage of openness of the economy and the influence of MNCs on domestic markets- Integrations of nations economy with rest of the world (Policy of globalization) 8The environmental factors have a far reaching influence on the functioning and performance of firm/s. Therefore, business managers have to consider thechanging economic, social and political environment before taking any decision. Managerial economics is however, concerned with besides the economic environment and in particular with those which form the business climate. The cartoon of social and political factors falls out of the perview of managerial economics. It should, however, be borne in mind that economic, social and political factors are inter-dependent and interactive. The environmental issues mentioned above fall within fourwalls of macro economics, therefore the following constitute the scope of managerial economics Issues related to Macro Variables General trends in economic activities of the country Investment climate Trends in output Trends in price aim (state of inflation) Cons umption level and its pattern Profitability in business elaboration Issues related to Foreign Trade Trade relation with other countries celestial sphere and firms dealing in exports and imports Exchange rate fluctuations Inflow and outflow of capital Trends in international trade- volume, composition, and direction Trends in international prices of various goods and function International monetary mechanism Rules, regulations and policies of WTO Issues related to Government Policies Regulation and keep in line of economic activities of private sector business enterprises Enforcing the government rules and regulations for imposing of social responsibility Striking balance between firms intention of profit maximization and societys interest Policy and restrictive measure for reducing social costs in terms of environmental pollution, congestion and slums in cities, basic amenities of life such as means of transportation and communication, water, electricity supply etc.