If the price of a loaf is one fifth of the price of a cinema seat, then the cost of five more loaves of bread is one cinema attendance forgone or, put other way round, the cost of one cinema attendance is five loaves of bread foregone. For example, a farmer may be required to choose between a guaranteed price achievable by selling his crop at a price fixed now in the futures market prior to harvest and an unknown price based on supply and demand immediately after the harvest. He infuses objectivity, broad perspective and concept of alternatives into decision making process. Managerial economics extracts from microeconomic theory those concepts and techniques that enable a decision maker to select strategic direction, to allocate efficiently the resources of the organisation, and to respond effectively to tactical issues. Instead of explaining what a firm is doing, we explain what it should do to make its decision effective. A good deal of imagination is required to apply the historical method. The top level managers will t … ake the decisions and pass it towards the middle level and thy will pass it to the bottom level , there will be no consideration for the bottom level managers to play in the decision making process.
It is merely a list of prices and corresponding quantities of a commodity that would be demanded by some individuals at uniform prices. Likewise the operations of non-profit organizations and government agencies are affected by the economic climate of a region or general business conditions of the nation. It is also known as the price theory is the main source ofconcepts and analytical tools for managerial decision making. He has to understand the nature of the markets firm which the firms is buying its raw materials and of the market where it is selling its output. Relation of Managerial Economics to Other Areas of Management 5. It is concerned with those analytical tools which are useful in improving decision making.
Without these assumption, the ability to make predictions about the cause-and —effect relationship becomes unmanageable. The real world is no doubt complicated. . Pricing system:Here pricing refers to the pricing of a product. The factors of production otherwise called inputs, may be combined in a particular way to yield the maximum output. Promotional strategy and activities determination of optimum advertising budget 5.
Such decisions require an act of investment or capital expenditure which will yield a return in future periods. It is based on the economic analysis for identifying problems,organizing information and evaluating alternatives. This point is illustrated in Fig. Managerial economics is mostly applicable to risk analysis, production analysis, pricing analysis, and capital budgeting. In this case the business decision should be made with the help of linear programming optimization. The law asserts that quantity supplied of a good or service is directly related to the selling price, ceteris paribus. In order to have a complete look at the problem, the information should be gathered thoroughly, which relates to the involved shareholders or factors.
Managerial economics analyses the nature of such financial trade-offs and illustrates the relevance of the economics of time and uncertainty in various resource allocation decisions. Deadline guaranteed : Myassignmenthelp always deliver work before deadline so that any query can be resolved in time. For the allocation of the resources various advanced tools such aslinear programming are used to arrive at the best course of action. Businessmen deal primarily with concepts thatare essentially quantitative in nature e. It seems that the subject will become more and more popular in future.
Subject Matter of Marginal Economics 7. The first involves a specific decision that must be made by the manager. It is the branch of economics which serves as a link between abstract theory and managerial practice. Successful managers know how to pick out and utilize the relevant information from the vast amount of information they receive for decision making purposes. Thus, gasoline and motor oil are jointly demanded; they are compliments.
Apart from the above studies, the managerial economist has to perform certain specific functions. There are well defined theoretical structures in economics. Managerial economics plays an active role in the evaluation and assessment of certain managerial policies. In the above example it is therefore important to give due consideration to the time perspectives. But managerial theory studies only about individual firm.
All these measures were aimed at ensuring that the scarce resources of the government are directed towards provision of essential services. The latter is a normative concept, and a just distribution of the national product would be one that our value judgements told us was a good or desirable distribution. It is also important to understand how product has to be priced underdifferent kinds of competition, for different markets. The proper answer to this is, both. In reality, there is not only evidence of conflict of interests of managers and shareholders, but also that functional and personal goals are more important than profit-maximization. Wrong decisions may follow if the focus is on the concept of average rather than on marginal analysis.