Re: Managerial Economics -
November 23rd, 2010
A firm can survive only if it is able to cater to the demand for its product at the right time, with the right quantity, understanding the basic concepts of the demand, which are essential for the effective demand forecasting. Demand analysis should be a basic activity of the firms because many of the other activities of the firm depend upon the outcome of the Demand Forecast. The Demand analysis.
a. Provides the basis for analyzing market influences on the firm’s products and thus helps in the adoption to those influences.
b. Demand analysis also highlights the factors which influence the demand for the product which helps to manipulate the demand.
Thus Demand analysis studies not only the price elasticity but also income elasticity, cross elasticity as well as the influence of the advertising expenditure. With the growth of the IT, demand forecasting has become an increasingly important function of the managerial Economics.
2. Pricing and competitive Strategy:
Pricing is very important area of the M.E. In fact, price is the genesis of the revenue of a firm and as such the success of the business firm largely depends on the correctness of the price decisions take n by it. Pricing decisions have been always within the purview of M.E price theory helps to explain how the prices are determined under the different types of market conditions.
3. Cost & Production Analysis:
Cost estimates are very essential in the decision making. A study of the economic costs, combined with the data drawn form the firm’s accounting records, can yield significant cost estimates that are useful for the management decisions. The factors causing variations in costs must be recognized and allowed for it, the management is to arrive at the cost estimates, which are significant for the planning purposes. An element of cost uncertainty exists because all the factors determining costs are not always known or controllable. Knowing economic costs earlier, and being able to measure them are the most necessary steps for the effective profit planning, cost control and often good pricing strategies.
Production analysis is a narrower in scope than cost analysis, production analysis frequently proceeds in physical terms and while cost analysis proceeds in the monetary terms. The chief topics covered under the cost analysis are the cost concepts and classifications, cost analysis, cost-output relationship, economics and diseconomies of scale, analysis of the production function and cost control.
4. Resource Allocation:
M.E like the traditional economic theory is concerned with the problem of optimum allocation of the scarce resources. Marginal Analysis is applied to the problem of determining the level of output which maximizes profit. In this respect Linear programming technique has been used to solve optimization problems. (Linear programming is one of the most particular managerial decision making tools used by the organizations.)
5. Profit Analysis:
Business firms are generally organized for the purpose of making profits, and in the long run, profits provide the chief measure of success. Here some focus is to be made on the element on uncertainty about profits because of the variations in the costs and revenues which, in turn, are caused by factors both internal and external to the firm. If the knowledge about the future is perfect, profit analysis would have been a very easy task. However in the world of uncertainty the difficult area of the M.E. The important aspects covered in this area are nature of the profit polices and the various techniques of the profit planning like B.E.P (Break Even point) analysis etc.
6. Capital or investment Analysis:
Capital is a scarce and expensive factor of production. Of all the various types the classes of the business problems, the most complex and troublesome for the business manger are likely to be in the future. Problems relating to the capital investment, as relatively a larger sum is involved and problems are so complex and their disposal of the finances. The decisions regarding this require considerable tome and labour. All this type of analysis will be done by the top level people in the organization.
Briefly capital management implies planning and the control of capital expenditure. Lack of the capital may result in small size of the operations. Availability of the capital form the various sources like equity capital, institution finance etc. may help to undertake large scale of the operations. Hence the different allocation of the capital is one of the most important tasks of the managers.
The major issues related to the capital analysis are.
a. The choice of the investment of the project.
b. Evaluation of the efficiency of the capital.
c. The most efficient allocation of the capital.
The knowledge of the capital theory can help very much in taking he investment decisions which involves capital budgeting. Feasibility studies, analysis of the cost of capital, rate of the returns etc.
7. Strategic Planning:
Strategic planning provides the management with the framework on which long- tem decisions can be made where has an impact on he behavior of the firm. The firm sets certain long- term goals and objectives and selects the strategy to achieve the same. Goal are set with the expectation that if they are achieved they will contribute to the near term satisfaction of the company’s objectives.
Strategic planning is now a new addition to the scope of M.E with the emergence of the MNC’s. The perspective of the strategic planning is global. It is in contrast to project planning which focuses on the specific project or activity. Strategic planning examines the details required to the effective implementation of the particular strategy within a certain time period. Portfolio models and corporate simulation models cause in the area of the strategic planning. In fact the integration of M.E and strategic planning has given rise to a new area of study called corporate economies. | 
Managerial Economics -
October 28th, 2010
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