The two major concepts in this analysis are incremental cost and incremental revenue. It is difficult to locate any order, sequence or law in such a confused and complex structure. Economics has two main branches—micro-economics and macro-economics. This helps in ensuring proper liquidity within the organization. Therefore, it would be useful to examine the basic tools of managerial economics and the nature and extent of gap between the economic theory of the firm and the managerial theory of the firm. Slide 24: This slide showcases Process Flow adopted, followed. Setting the Objective: Refers to first and foremost step of the demand forecasting process.
That's all free as well! Mathematical approach to economic theories makes them more precise and logical. The researchers can examine whether the guidelines are useful or not. Mathematically it is written as 3 Meaning and concept of elasticity cont Ed Percentage Change in Quantity Demand Percentage Change in Price Or? For example, if an organization expects a rise in the demand for its products, it may opt for extra labor to fulfill the increased demand. The customer is willing to pay only Rs. Forecast is different from prediction.
The firm can increase any one of these activities by employing more labour but only at the cost i. A serious mistake will endanger the company s existence. Managerial Economics and Accounting : Managerial economics is closely related to accounting. The role of the managerial economist is not to take decisions but to analyse, conclude and recommend. Production is an organised activity of transforming inputs into output.
Level of Forecasts: Influences demand forecasting to a larger extent. A businessman has to take mainly two different but interrelated decisions in marketing. He should also undertake investment appraisal, project evaluation and feasibility study. Economics is neutral between ends. Forecast is an estimate of future events and trends and is arrived at by systematically combining past data and projecting it forward in a predetermine a manner. The experimental method may be usefully applied to those aspects of managerial behaviour which call for accurate and logical thinking.
Scientific method alone can bring about confidence in the validity of conclusions. Managerial theory provides necessary conceptional tools which can be of considerable help to the manager in taking scientific decisions. Suppose a new order is estimated to bring in an additional revenue of Rs. Let us assume a case in which the firm has 100 unit of labour at its disposal. The subject offers powerful tools and techniques for managerial policy making. But managerial theory deals with a study of only profit theories.
Managerial economics has a close linkage with other disciplines and fields of study. Hence, cost structure, reduction of cost and cost control has come to occupy important places in business decisions. It is simply that in the intervening period a sum of money can earn a return which is ruled out if the same sum is available only at the end of the period. Statistical methods are used for such comparison among past, present and future estimates. Slide 2: This is an Agenda slide.
Incremental analysis differs from marginal analysis only in that it analysis the change in the firm's performance for a given managerial decision, whereas marginal analysis often is generated by a change in outputs or inputs. Demand forecasts serves as a guide to the management for maintaining its market share in competition with its rivals, thereby securing its profit. Firms may be uncertain about production, market prices, strategies of rivals, etc. The managerial economist often needs focused studies of specific problems and opportunities. . Therefore, short period forecasts are more accurate than long period forecasts.
Economic theory deals with a study of distribution theories of rent, wages, interest and profits. It deals with the behaviour of the large aggregates in the economy. Macroeconomics deals with the performance, structure, and behavior of an economy as a whole. In recent years, there is a trend towards integration of managerial economics and Operation Research. Managerial economics makes use of correlation and multiple regression in business problems involving some kind of cause and effect relationship.