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Where you can apply Managerial Economics?

Where you can apply Managerial Economics?

 

The scope and application of ME is so wide that it encompasses each problem of the manager & firm. It can deal with demand analysis and forecasting, production function, cost analysis, inventory management and advertising price system.

In broad terms you may apply ME as below -:

  • Demand analysis & forecasting
  • Production Function
  • Cost Analysis
  • Inventory Management
  • Advertising/Promotion
  • Pricing System
  • Resource Allocation
  • Capital Budgeting

                ……………and lots more.

  • Demand analysis & forecasting – It analyses and provides a estimate of demand for products of a company. By this a manager can estimate a not only the current demand but can also estimate the future requirements so that he can allocate resources based on the planning.
  • Production Function – Many resources have alternative resources that can be utilised in the same or way so as to yield the same result. The production inputs (raw materials) can be combined in such a way so as to reduce cost and avoid price hikes. Therefore a manager can work out and provide the best resources for the work in the best price.
  • Cost Analysis – It determines cost and relationship between the cost and output, forecasts the cost structures and profits. It's a very vital information which is required by almost every organisation to develop their strategy so as to minimize the costs by giving out the satisfactory or good quality.
  • Inventory Management – Inventory refers to stocks or raw materials which the firm uses to manufacture goods. A manager must analyse that how much raw materials is required for the optimum production level without any wastage. By keeping additional stocks a manager can block capital and space which was invested in that extra stocks. On the other hand if the Inventory was kept low then it can hamper the production. Therefore manager reduce the inventory cost but should fulfill the production requirements.
  • Advertising/Promotion – First a firm has to manufacture the goods and then should be able to create the market for that good and create the demand for that. To do so firms do advertising and sell the products. Advertising should be optimum so that advertising costs do not affect the product cost.
  • Pricing System – It's a widely used concept in economics and is decided by the economics. It should consider the costs in production and other costs. It should be priced at a competitive price so as to beat the competitors in the market while keeping the quality standards at the highest level. Pricing can be different in different conditions like – Oligopoly. In a non competitive conditions a pricing structure should be good enough so as to retain the customers and make enough profits.
  • Resource Allocation – Every resource and its price depends upon its needs and supply and if it has wide use and a low supply then definitely it will increase the cot of the resource and therefore wil increase the cost of the production and therefore will rise the cost of product. Therefore to minimize these costs a scarce resource must be utilised in the most efficient way so as to give desirable quality and survive the competition in the market. It also includes the planning whenever the costs rises or resources becomes unavailable so that alternate resources can be allocated to keep the production work ongoing.
  • Capital Budgeting – A manager must know the budget requirements or the capital required to run the business successfully so that they can manufacture the products at the desired pace. Manager should invest the capital in a efficient way and should direct it to get the best results.

So one can say that ME is Applied economics because we follow the economics theories and do the research and plan the strategies then implement them in business process.

 

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