27 nov relationship of managerial economics with functional areas of business
It is helpful in making such short term and long term decisions as: which products and services to produce? The pertinent question here is how far a firm can be expected to go ahead with more social responsibility programme whose costs far exceed the benefits which they bring. The WTO Managerial economics makes use of the concept of price elasticity of demand in order to numerically measure and quantify market sensitivity of demand, i.e., how sensitive consumers are to price varies among products and among markets. customs duty against a particular country or a particular good, the WTO may Nowadays, some new and emerging dimensions are also considered areas of management as: time management, environment management, transport management, international management, forex management. In some companies, it is the task of business economists to produce such forecasts. for pricing decisions and, of course, the cost and benefits of current inventory policies. If the future were known with certainty, it would be very easy to take financial decisions. If there is scarcity but no alternatives, choice making is impossible and the problem is not economic in nature; if there are alternatives but no scarcity (goods or resources are free) economics is not required. The WTO administers the agreements, handles The theoretical structure permits us to concentrate on a few important forces and ignore others. It provides the practicing manager with those tools and techniques which are useful in day-to-day decision making. Models are no doubt abstractions from reality. nations. Since managerial economics is basically concerned with economic decision making within the firm, it is more close to microeconomics than to macroeconomics. In the USA, there are anti-trust laws. America’s famous magazine Business Week (Feb. 13, 1978) summed up the role of the managerial economist as follows: “…… companies across the country are now demanding less of the old-style corporate economist who churned out sweeping economic forecasts, which often were swept into the waste basket, and are turning instead to the new-style economist who can play his skills in such fields as econometrics and industrial economics to help shape company policy. The theoretical notion of a single optimum solution is replaced by the view that solutions must be found to balance conflicting objectives. So firms should take decisions which are consistent with the economic environment of business. Theory allows people to gain Likewise, giving necessary financial support to other departments is the headache of the financial manager. Investment refers to expenditure on capital goods. Managerial economics is a management science that gives you more idea about the economic aspects of a market and how they affect your decision making. Governments should try to obtain the maximum benefit for tax payers in spending their revenues; government agencies can measure their efficiency through cost-benefit analysis. The Managerial Economic Theory of the Firm: The fundamental analytical framework for the study of managerial economics is provided by the economic theory of the firm, which consists of three basic elements. “Managerial economics is concerned with the application of economic principles and methodologies to the decision making process within the firm or organisation. This point is illustrated in Fig. He (she) has always to worry about whether there is enough cash to support the company’s production and marketing activities. In reality they are inseparable. For instance, economic forces in the marketplace determine the demand for products, the prices of resources, costs of production, the number of rival firms, the nature of pricing strategies and ultimately the profitability of business investments. But they have a common interest: they have the need for some reliable (though not totally perfect or accurate) estimates of the demand for the product being sold by the firm. This point has been made by Professor W. J. Baumol. Not only every manager but also every individual has to make economic decisions every day. firm attempts to achieve its goal most efficiently. It draws together and relates ideas from several functional fields of business administration, including accounting, production, marketing, finance, and business policy. The Philippines is among the most vulnerable countries to extreme weather events in the world. However uncertain these sales forecasts may be, they must be translated into weekly and monthly production schedules, inventory requirements and manpower needs. It is the task of economic theory to help managers know what information should be obtained, how to process it and finally, how to use it. The determination of the best combination of price and quantity, 4. 05 MBA 12 Managerial economics No. True enough, if there is a single common thereat that permeates the business person’s view of the real commercial world, it is the necessity to adapt to change. Indeed, an increasing number of them have joined the team of top-level executives who map business strategy.”. In other words, economic theories and models focus on the individual firm, or industry, consumer or group of consumers, but they ignore social issues of the goals or society or that of the public at large. The objective of the sales and marketing managers may be to maximize sales revenue, not profit. The present title is perhaps the most comprehensive of all because it examines various aspects, topics and examples of managerial economics. applied to: To reach the writer, e-mail [email protected]. So managerial economics provides efficient decision-making tools to those also who are employed in non-business operations. The firm’s cost of production and distribution are also affected by another environmental factor, viz., the current state of technology, which helps to determine the opportunities for economies of scale in production. The primary goal of a manufacturing firm is to maximize its total profit. We can make predictions from theory that will hold in the real world even though the theoretical structure abstracts from many actual characteristics of the world.”. Rational pricing and competitive marketing decisions are based on considerable knowledge of specific product markets and industry behaviour on the part of the business economist. Relation of Managerial Economics to Other Areas of Management: It is possible to establish link of managerial economics to other areas of management. for example, setting up an office in that country, the rules of the WTO (and How to produce them — what inputs and production techniques to employ? 2.1 provides a broad overview of the most significant factors, internal and external, that would be taken into consideration by functional managers. But statistics, vital as it is, ultimately provides only part of the input needed in decision making. Because sales revenue and profits of the firm and industry are affected by the macroeconomic environment, managerial economics must relate the concept of macroeconomics to the problems of the business firm. The goal of achieving maximum profit is often tempered by the social responsibilities of the firm. components: the globalization of markets, the spread of information technology Since resources are limited, companies have to allocate scarce resources among different activities or- branches of production. However, the pursuit of each of these objectives in isolation would not lead to the fulfilment of the overall objective of the company, i.e., profit maximization. hence, a country’s local laws) will govern how that can be done. Business enterprises are often faced with resources allocation decisions involving very long period of time. Managerial economics can also be applied to the decision making process of non-profit seeking and public sector enterprises. To recall, a major role of a manager is obtaining and processing information. consensus; though a majority vote may also rule (this is very rare). To actually use forecasting models in everyday business situations, close attention must be paid to details, such as inventory in the automobile industry, excess capacity in chemical manufacturing, or measurements of consumer attitudes. trade disputes, monitors national trade policies, provides technical assistance Motivations, the relation of rewards and aspiration levels, and patterns of influence and authority all these are key factors in the theory of decision making.
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