What is Managerial Economics? Explain the responsibility of Managerial Economist. Quote one example by taking any company and Identify the areas of decision making where managerial economics prescribes specific solutions to business problems.
Answers
Answer:
With the advent of managerial revolution, the managerial economists have occupied an important place in modern business. Present business problems are either too obvious in their solution or purely speculative and they need a special form of insight. A managerial economist with his sound knowledge of theory and analytical tools can find out solution to the business problems. In advanced countries, big firms employ managerial economists to assist the management.
A managerial economist's main role is to improve the quality of policy making as it affects short term operation and long range planning. He has a significant role to play in assisting the management of a firm in decision making and forward planning by using specialised skills and techniques.
The factors which influence a business over a period may lie within the firm or outside the firm. These factors can be divided into two categories:
(i) External and
(ii) internal.
The external factors lie outside the control of the firm and these factors constitute ‘Business Environment’. The internal factors lie within the scope and operation of a firm and they are known as ‘Business Operations’.
1. External Factors:
The prime duty of a managerial economist is to make extensive study of the business environment and external factors affecting the firm’s interest, viz., the level and growth of national income, influence of global economy on domestic economy, trade cycle, volume of trade and nature of financial markets, etc. They are of great significance since every business firm is affected by them. These factors have to be thoroughly analyzed by the managerial economist and answers to the following questions have also to be found out:
(i) What are the current trends in the local, regional, national and international economies? What phase of trade cycle is going to occur in the near future?
(ii) What about the change in the size of population and the resultant change in regional purchasing power?
(iii) Is competition likely to increase or decrease with reference to the products produced by the firm?
(iv) Are fashions, tastes and preferences undergoing any change and have they affected the demand for the product?
(v) What about the availability of credit in the money and capital markets?
(vi) Is there any change in the credit policy of the government?
(vii) What are the strategies of five year plan? Is there any special emphasis for industrial promotion?
(viii) What will be the outlook of the government regarding its commercial and economic policies?
(ix) Will the international market expand or contract and what are the provisions given by the trade organisations?
(x) What are the regulatory and promotional policies of the central bank of a country?
A managerial economist has to answer to all these and similar questions. The role of the managerial economist is not to take decisions but to analyse, conclude and recommend.
DEFINITION
- Managerial Economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. In other words, managerial economics is the combination of economics theory and managerial theory.
RESPONSIBILITY
- A managerial economist helps the management by using his analytical skills and highly developed techniques in solving complex issues of successful decision-making and future advanced planning. ... He assists the business planning process of a firm. He also carries cost-benefit analysis.