Managerial economics is the process of application of economics principles, techniques and concepts to solve managerial problems of a business enterprise. It helps the management in efficient and economical use of scarce resources of the firm. The scope of managerial economics is narrower than that of pure economic theory because economic theory includes both the Micro and Macroeconomics but managerial economics focuses mainly on microeconomics. Though no uniform pattern has been followed by writers to explain the scope of managerial economics, however, it can be said that the scope of managerial economics includes following topics.
Theory of Demand: The traditional theory of demand is very useful in analyzing the consumer’s behavior. It answers various questions regarding behavior of consumer’s like why do a consumer buy a particular commodity? In how much quantity do they purchase a commodity? What is the effect of the income, habit, and taste of consumers on the demand of a commodity? What are other factors influencing the demand of a commodity? Why and when do the consumers stop to consume a commodity? And so on. It is also necessary choose a suitable method for demand forecasting because an estimate of future sales is essential before preparing production schedule and employing production resources. Therefore, demand analysis and forecasting is essential for business planning.
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