The roots of managerial economics spring from micro-economic theory. The relationship and accord among these factors are estimated with the help of managerial economics. The main reasons behind uncertainty and risks are uncertain behavior of the market forces which are as follows: The demand and supply Changing business environment Government policies External influence on the domestic market Social and political changes Economic problem: Meaning of Economic problem: To know the meaning of the term economic problem we have to put together the four characteristics i. The accounting profession has a significant impact on cost and revenue information and classification. Checking Your Decision Just because you've finally made a choice does not mean it has to stand etched in stone.
Is there any special emphasis for industrial promotion? The objective is to assure the most profitable use of funds, which means that funds must not be applied when the managerial returns are less than in other uses. These decisions aim at achieving the best interests of the organisation. This function is being done by managerial economics. It provides a basis for managerial decision. Equi-Marginal Concept : One of the widest known principles of economics is the equi-marginal principle. It aims at the development of economic theory of the firm while facilitating the decision making process with regard to sales and profits etc. Large inventory of raw materials, intermediate goods and finished goods means blocking of capital.
Basic Economic Tools in Managerial Economics for Decision Making Economic theory offers a variety of concepts and analytical tools which can be of considerable assistance to the managers in his decision making practice. The economic significance of opportunity cost is as follows: 1. It refers to a procedure or mode of investigation by which scientific and systematic knowledge is acquired. Yet the message about the product should reach the consumer before he thinks of buying it. Models can guide business executives to predict the future consequences.
Thus, situational comparability is an essential element of this method. Equi — Marginal Principle This principle deals with the allocation of an available resource among the alternative activities. Therefore economic problem can be called as the problem related to the unlimited wants with limited resources. Thus we see that a firm has uncertainties to rock on with. Economics is neutral between ends. It deals with the behaviour of the large aggregates in the economy. By this way, he can assist the management in adopting appropriate adjustment in policies and programmes.
Incremental reasoning does not mean that the firm should accept all orders at prices which cover merely their incremental costs. In this pursuit, the decisions related to demand are of much significance for managers as the process entails making appropriate estimates with successful forecasts on sales before the activity of production is to be carried out. In managerial economics, we are interested in what should happen rather than what does happen. He should be ready to undertake special assignments with full seriousness. Also, the managerial decision deals with the estimation in cost and are helpful for making management decisions.
Investments Many managerial economic tools and analysis models are used to help make investing decisions both for corporations and savvy individual investors. He should concentrate on the economic aspects of problems. A manager has to take numerous decisions in the management of business which may be minor or major, simple or complex. For example, managerial economic theory can be used to help a company decide between purchasing, building or leasing operational equipment. An element of cost uncertainty exists in this because all the factors determining costs are not always known or controllable. The manufacture and sale of cigarettes and wine may be injurious to health and therefore morally unjustifiable, but the economist has no right to pass judgment on these since both satisfy human wants and involve economic activity.
The problems of the business world attracted the attentions of the academicians from 1950 onwards. Take the time you need and the best alternative should become obvious. Therefore, we can conclude that the subject matter of managerial economics consists of applying economic principles and concepts towards adjusting with these uncertainties of the firm. All these decisions and arbitrations are possible when there is an active role and exercise of managerial economics which automatically affects the decisions related to cost control. Statistics is important in providing the individual firm with measures of the appropriate functional relationship involved in decision making. However, in a world of uncertainty, expectations are not always realized. The accounting techniques are very essential for the success of the firm because profit maximisation is the major objective of the firm.
Once the source or reason for falling profits has been found, the problem has been identified and defined. Whether it is the wrong pricing policy, bad labour-management relations or the use of outdated technology which is causing the problem of declining profits. Having been regarded as micro economic as well as the economics of the firm, managerial economics is related to the economic theory which is to be applied to the business with the objective of solving business problems and to analyze business situations and the factors constituting the environment in which a business is operated. This generalisation is popularly called the equi-marginal. When we apply the game theory, we have to consider the following: i The players are the two firms; ii They play the game in the market place; iii Their strategies are their price or output decision; and iv The pay-offs or rewards are their profits. Through tweaking the operations and production of a company, profits rise as costs decline. In respect of this, managerial economics cover the aspects, such as, Profit policies and the techniques of profit planning - Break Even Analysis - also called as cost volume profit analysis - that assists significantly in profit planning and cost control methods with a view to maximize profits of the business.
Thus, if it is found that expected results are not forthcoming due to the wrong implementation of the decision, then corrective measures should be taken. The problems relate to choices and allocation of resources is faced by managers all the time. There are several areas which have attracted the attention of the managerial economist, such as maximising profit, reducing stocks, forecasting sales, etc. The business transactions are varied and multifarious. Online information has come to the rescue of many time-pressed small-business owners, as have those glossy corporate materials that are designed to impress. The managerial economist should make use of his experience and facts in deciding the nature of action. The most important obligations of a managerial economist is that his objective must coincide with that of the business.