Scope of Managerial Economics
Demand analysis and forecasting
When a business manager decides to venture into a business, the very first thing he needs to find out is the nature and amount of demand for the product, both at present and in the future. A firm's performance and profitability depends upon accurate estimates of demand. The firm will prepare its production schedule on the basis of demand forecast. Demand analysis helps to identify the factors influencing the demand for a firm's product and thus helps a manager in business planning.
Demand analysis and forecasting thus help him in the choice of the product and in planning output levels. The main topics covered under demand analysis and forecasting are the concepts of demand, demand determinants, law of demand, its assumptions, elasticity of demand (price, income and cross elasticity), demand forecasting, etc.
Cost and production analysis
Estimation of the cost in production.
Recognizing the factors, which are causing cost to firm.
Suggests cost should be reduced for making good profits.
Production analysis deals with, Minimum cost should be spend on raw materials and maximum production should be obtained
Pricing decisions, policies and practices
Once a particular quantity of output is ready for sale, the firm has to fix its price given the conditions in the market. Pricing is a very important aspect of Managerial Economics as a firm's revenue earnings largely depend on its pricing policy. A correct pricing policy makes a firm successful, while incorrect pricing may lead to its elimination. The topics covered under this area are: price determination in various market forms such as perfect market, monopoly, oligopoly, etc., pricing methods such as differential pricing and product-line pricing, and price forecasting.
Business firms are established with the objective of making profits and it is thus the chief measure of success. For maximizing profits the firm needs to take care of pricing, cost aspects and long-range decisions, i.e., it has to evaluate its investment decisions and carry out the best policy of capital budgeting for the firm under a given set of conditions. If we know the future, profit analysis would be an easy task. However, in a world of uncertainty our expectations are not always realized, so that profit planning and measurement constitute a difficult area of Managerial Economics. The important aspects covered under this area are: nature and measurement of profit, profit policies, and techniques of profit planning like break-even analysis, cost-volume-profit analysis, etc.
Large amount of capital / money is invested in to the business and that money should be managed efficiently.
Study of markets is one of the important aspects of the work of a managerial economist. A manager should have clear knowledge of different markets existing in the environment. The environment is not constant and goes on changing. Thus, the manager should know clearly about perfect and imperfect markets so as to introduce the product in such markets where he can increase the sales revenue. The main aspects are perfect market, monopoly market, monopolistic market, oligopoly market, and price fixation under different market conditions.