Economics is a hub of concepts and analytical tools which can prove to be a boon for assisting the manager in arriving on a decisive conclusion and plan their business accordingly. Managerial economics is one such concept of economics that finds a potent application in your day-to-day business. In fact, every person who desires to achieve a personal-professional success in life should aim at thoroughly understanding the objectives of managerial economics to make the right decisions at the right time.
Before peeping through how this managerial economics can help mankind, let us briefly understand Managerial Economics? What is managerial economics? Both management and decision are inseparable from each other. To simplify, Managerial Economics is defined as a process wherein the managers consider certain objectives, factors, and output, arrive at a final conclusion.
Therefore, it can be rightly said that the process of decision-making forms an integral part of Managerial Economics. Three Main Pillars of Managerial Economics — Demand Analysis and Forecasting — Both demand analysis and forecasting require a specific amount of researching ability and decision-making.
In fact, demand analysis forms an integral part of the decision-making process of every business today. Profit Management — The success of any household or any business entity solely relies on its primary measure i. Both firm employees and household members should be continuously encouraged and motivated to maximize their earning potential. Shortly, this will surprise the hard-working individuals with the benefits of risk-taking. The most critical and challenging area of managerial economics is to plan appropriately and measure your earned profit.
Capital Management — The process of capital management involves both planning and controlling household expenses. The problems associated with capital investments involve considerable inputs of both time and labour. Thus, the capital cost and return rate should both be prioritized as essential considerations for capital management.
February 2, Share on facebook. Share on twitter. Share on linkedin. Table of Contents. Nature of managerial economics You need to know about its various characteristics to get more information about managerial economics. Many economists also find it a source of research, saying it includes applying different economic concepts, techniques and methods to solve business problems.
Micro Economics: In managerial economics, managers typically deal with the problems relevant to a single entity rather than the economy as a whole. It is therefore considered an integral part of microeconomics. Uses Macro Economics: A corporation works in an external world, i. For this purpose, it is important that managers evaluate the various macroeconomic factors such as market dynamics, economic changes, government policies, etc.
Multidisciplinary : It uses many tools and principles that belong to different disciplines, such as accounting, finance, statistics, mathematics, production, operational research, human resources, marketing, etc. This also allows for setting priorities, formulating policies, and taking successful decision-making.
Pragmatic: The solution to day-to-day business challenges is realistic and rational. The concepts of Managerial Economics Liberal Managerialism A market is a democratic space where people make their choices and decisions in a liberal way. Normative managerialism The managerial economics normative view states that administrative decisions are based on experiences and practices of real life. Radical Managership Managers have to have a creative approach to business concerns, i.
Managerial economic values The excellent macroeconomist N. Gregory Mankiw has given ten principles to explain the significance of business operations in managerial economics Principles of Managerial Economics Principles of How People Decide Let us go through the following principles to understand how decision-making takes place in real life: Humans face tradeoffs: To make decisions, people have to make choices on whether to choose from the different options available.
Price of Opportunity: Each decision involves a cost of opportunity which is the cost of those options that we let go of while choosing the most appropriate one. Feel fair about the margin: People typically think about the margin or income they receive before investing in a specific project or individual with their money or resources. People respond to stimulus: Decisions to be made highly depend on incentives related to a product, service or activity.
Negative incentives discourage people, whilst positive incentives encourage people. Principles of How People Interact Communication and market impact business transactions. Let us take a look at the following related principles to justify the statement: Trade Could Better Anyone: The theory states that trade is a way for people to share.
Markets usually represent a good way to organize economic activity Markets often serve as a means of customer and product interaction. Governments may often boost the performance of the market During the time of adverse market conditions, or for the benefit of society, the government intervenes in business operations. Society faces a short-term correlation between unemployment and inflation The government introduces numerous economic policies to reduce unemployment.
Scope of Managerial Economics Managerial economics is commonly used to deal with various business problems within organizations. The points which follow illustrate its significance: Micro-economy Applied to operational matters The various theories or principles of microeconomics used to solve the internal problems of the organization arising in the course of business operations are as follows: Demand Theory: Demand Theory emphasizes the behavior of the consumer towards a product or service.
Decisions on Production and Production Theory: This theory is primarily concerned with the volume of production, process, capital and labor, costs involved, etc. It aims to optimize production to meet customer demand. It also depends on demand from the market, input costs, level of competition, etc. Decisions on capital and investment theory: Capital is the most important business element.
This philosophy takes priority over the proper distribution of the resources of the company and investments in productive programs or initiatives to boost operational performance.
Macro-Economics Applied to Business Environment Any organization is greatly affected by the environment in which it operates. Social environment: The society in which the organization, like employment conditions, trade unions, consumer cooperatives, etc. Business Economist: They deal with various sectors and companies and their main role is to serve as an intermediary between the corporate and the outside world.
Asset Manager: They deal with different sectors and businesses and their main role is to act as an intermediary between the corporate and the outside world. Market Analyst: A Market Analyst analyses the market so that their employers can make a better decision with respect to product launching or rendering services. Operations Manager: From output to review of statistics to educating new staff, an Operations Manager manages all day-to-day activities in the company and needs to make sure that the organization runs at an optimal level.
Teaching: After completing an M. A in Economics with a mark of at least 55 percent an applicant can either seek a Ph.
Equity Analyst: An equity analyst extracts equity information for investment purposes and explores stock market insights as to where to invest or whether to proceed or sell on the market.
Economic services of India: You will complete M. And MA. The age range is from years. The test is administered by UPSC. Public sector Banking Services: Reserve Bank of India also recruits banking-sector economists through their own various recruitment exams.
The age limit is years. Private and foreign banks: A holder of an Economics degree can try for both private and foreign banks. The Banking job categories are branch managers, clerks, economic analysts, planning and development officers, etc. Agencies Worldwide: Experienced and famous economists in a well-known international organization such as the World Bank and the International Labor Organisation ILO can get employment opportunities.
However, some readers may question whether their own understanding of economics is essential, just as they may recognize that physical sciences like chemistry and physics are at work in their lives but have determined they can function successfully without a deep understanding of those subjects. These subjects form the core of the curriculum for most academic business and management programs, and most managers can readily describe their role in their organization in terms of one or more of these applied subjects.
A careful examination of the literature for any of these subjects will reveal that economics provides key terminology and a theoretical foundation. We live in a world with scarce resources The basic principle that individuals cannot have everything that they want and that others want the same things that we want.
We cannot have everything we want. Further, others want the same scarce resources we want. Organizations that provide goods and services will survive and thrive only if they meet the needs for which they were created and do so effectively. And even if the goods or services are of value, when another organization can meet the same need with a more favorable exchange for the customer, the customer will shift to the other supplier.
Put another way, the organization must create value The difference between what individuals acquire and what they produce; the basis of exchange between individuals and organizations. The thesis of this book is that those managers who understand economics have a competitive advantage in creating value. Help Creative Commons.
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