Relationship of Economics with Other Subjects
it is a full explanation about Managerial economics relationship with other subjects for MBA students and who require the az-links.info in. The relationships between managerial economics and the disciplines of decision Many different definitions have been given but most of them involve the. Brigham- “Managerial economics as the application of economic theory with business practice .. 82 Managerial economics relationship with other disciplines.
Managerial economics and accounting are closely interrelated. Accounting can be defined as the recording of financial operations of a business firm. A business manager needs a lot of accounting information data for logical analysis in decision-making and policy formulation at the level of firm.Relation to other 'subjects'
The accounting data and information has to be presented in a methodological manner worthy of analysis and interpretation for decision-making and future planning. This is why a new branch of accounting known as 'management accounting' has developed to help correct managerial decision-making. The main task of management accounting is to provide the sort of data which managers need to solve some business problems accurately.
Managerial Economics and Operational Research: Operational Research is closely related to managerial economics. Operational research is the application of mathematical techniques to solving business problems. It provides all the data required for business decisions and forward planning.
Techniques such as linear programming, game theory, etc. Managerial economics is concerned with efficient use of scarce resources. Operational research is also concerned with efficient use of scarce resources. There is close affinity between managerial economics and operational research. Managerial economics gives special emphasis to the problems involving maximisation of profits and minimisation of costs, while operational research focuses attention on the concept of optimisation.
Managerial economics has made much use of optimisation concept but initially started with marginal analysis taken from economics. Managerial economics uses the logic of Economics, Mathematics and Statistics for undertaking effective decisions, while operational research techniques based on these ways of thinking are being used to solve decision-making problems in business.
Again, both operational research and managerial economics are concerned with taking effective decisions. Operational research is a tool in the hands of managerial economics to solve day-to-day business problems.
Managerial economics is an academic subject which aims at understanding and analysing problems and decision-making by a firm. Thus, operational research is a functional activity pursued by specialists within the firm. Though it is expensive and a slow process, it helps managers make accurate solutions by means of providing necessary data. Managerial Economics and Marketing: Managerial Economics helps marketing in two ways. First, as a basic discipline, providing tools and concepts of analysis and second, as an integrating area, providing its judgement on the optimum sales volume under the given cost function of a firm, market structure, and the objective function to be optimized.
How much to sell under given circumstances is answered by an economist and how to sell the desired amount of output is the domain of the marketing manager. Sometimes, selling more than what is desired may harm the interest of the firm. It has, however, the sanction neither of Economics nor of marketing principles as both stresses on the protection of long run interests of the firm. Economics is of a great help to marketing in the sphere of pricing.
Of the three basic aspects of pricing viz. In the case of pricing techniques, there are varying practices in different organizations. In many pricing is handled by the accounts staff such as chartered accountants and company secretaries.
In this case, the simple statistical concepts of mean average and standard deviation are used. Estimating a relationship among variables requires a more advanced statistical technique. For example, a firm may want to estimate its cost function, the relationship between a cost concept and the level of output.
A firm may also want to know the demand function of its product, that is, the relationship between the demands for its product and different factors that influence it.
- Relationship of Economics with Other Subjects
- UNIT - I MANAGERIAL ECONOMICS.
The estimates of costs and demand are usually based on data supplied by the firm. The statistical Page 8 estimation technique employed is called regression analysis, and is used to develop a mathematical model showing how a set of variables are related. This mathematical relationship can also be used to generate forecasts. An automobile industry example can be used for the purpose of illustrating the forecasting method that employs simple regression analysis.
Suppose a statistician has data on sales of American-made automobiles in the United States for the last 25 years. He or she has also determined that the sale of automobiles is related to the real disposable income of individuals. The statistician also has available the time series for the last 25 years on real disposable income. Assume that the relationship between the time series on sales of American-made automobiles and the real disposable income of consumers is actually linear and it can thus be represented by a straight line.
A fairly rigorous mathematical technique is used to find the straight line that most accurately represents the relationship between the time series on auto sales and disposable income. For example, a retailing firm that has been in business for the last 25 years may be interested in forecasting the likely sales volume for the coming year. There are numerous forecasting techniques that can be used to accomplish this goal.
A forecasting technique, for example, can provide such a projection based on the experience of the firm during the last 25 years; that is, this forecasting technique bases the future forecast on the past data. While the term "forecasting" may appear to be rather technical, planning for the future is a critical aspect of managing any organization—business, nonprofit, or otherwise.
In fact, the long- term success of any organization is closely tied to how well the management of the organization Page 9 is able to foresee its future and develop appropriate strategies to deal with the likely future scenarios. Intuition, good judgment, and an awareness of how well the economy is doing may give the manager of a business firm a rough idea or "feeling" of what is likely to happen in the future.
Relationship with other subjects - Economics l Concepts l Topics l Definitions l online
It is not easy, however, to convert a feeling about the future outcome into a precise number that can be used, for instance, as a projection for next year's sales volume. Forecasting methods can help predict many future aspects of a business operation, such as forthcoming years' sales volume projections. Suppose that a forecast expert has been asked to provide quarterly estimates of the sales volume for a particular product for the next four quarters. How should one go about preparing the quarterly sales volume forecasts?
One will certainly want to review the actual sales data for the product in question for past periods. Suppose that the forecaster has access to actual sales data for each quarter during the year period the firm has been in business. Using these historical data, the forecaster can identify the general level of sales.
He or she can also determine whether there is a pattern or trend, such as an increase or decrease in sales volume over time. A further review of the data may reveal some type of seasonal pattern, such as, peak sales occurring around the holiday season.
Thus by reviewing historical data, the forecaster can often develop a good understanding of the pattern of sales in the past periods. Understanding such a pattern can often lead to better forecasts of future sales of the product. In addition, if the forecaster is able to identify the factors that influence sales, historical data on these factors variables can also be used to generate forecasts of future sales.
There are many forecasting techniques available to the person assisting the business in planning its sales. For illustration, consider a forecasting method in which a statistician forecasting future values of a variable of business interest—sales, for example—examines the cause-and-effect Page 10 relationships of this variable with other relevant variables, such as the level of consumer confidence, changes in consumers' disposable incomes, the interest rate at which consumers can finance their excess spending through borrowing, and the state of the economy represented by the percentage of the labor force unemployed.
Thus, this category of forecasting techniques uses past time series on many relevant variables to forecast the volume of sales in the future. Under this forecasting technique, a regression equation is estimated to generate future forecasts based on the past relationship among variables. Typically the units involved are: Production and operations 2. Finance and accounting 4. Human resources All of these functional areas can apply the theories and methods mentioned earlier, in the context of the particular situation and tasks that they have to perform.
Thus a production department may want to plan and schedule the level of output for the next quarter, the marketing department may want to know what price to charge and how much to spend on advertising, the finance department may want to determine whether to build a new factory to expand capacity, and the human resources department may want to know how many people to hire in the coming period and what it should be offering to pay them.
It might be noted that all the above decisions involve some kind of quantitative analysis; not all managerial decisions involve this kind of analysis. There are some areas of decision-making where the tools and techniques of managerial Page 11 economics are not applicable. For example a sales manager may want to motivate a salesperson to achieve a higher level of performance.
In this case an understanding and application of behavioral and psychological principles is relevant. That is not to say that economists can ignore these, but managerial economics tends to focus more on behavioral aspects when they concern consumers rather than when they concern the behaviour of employees.
Meaning, Scope & Methods of Managerial Economics
Production is an economic activity which supplies goods and services for sale in a market to satisfy consumer wants thereby profit maximization is made possible. The business executive has to make the rational allocation of available resources at his disposal. He may face problems relating to best combination of the factors to gain maximum profit or how to use different machine hours for maximum production advantage, etc.
Inventory Decision Inventory refers to the quantity of goods, raw material or other resources that are idle at any given point of time held by the firm. The decision to hold inventories to meet demand is quite important for a firm and in certain situation the level of inventories serves as a guide to plan production and is therefore, a strategic management variable.
Large inventory of raw materials, intermediate goods and finished goods means blocking of capital.
Meaning, Scope & Methods of Managerial Economics - ppt video online download
Cost Decisions The competitive ability of the firm depends upon the ability to produce the commodity at the minimum cost. Hence, cost structure, reduction of cost and cost control has come to occupy important places in business decisions. In the absence of cost control, profits would come down due to increasing cost. Page 12 Business decisions about the future require the businessmen to choose among alternatives, and to do this, it is necessary to know the costs involved.
Cost information about the resources is very essential for business decision making. Within market planning, the marketing executive must make decisions on target market, market positioning, product development, pricing channels of distribution, physical distribution, communication and promotion.
A businessman has to take mainly two different but interrelated decisions in marketing. They are the sales decision and purchase decision. Sales decision is concerned with how much to produce and sell for maximizing profit. The purchase decision is concerned with the objective of acquiring these resources at the lowest possible prices so as to maximize profit. Investment Decision The problems of risks and imperfect foresight are very crucial for the investment decision.
In real business situation, there is seldom an investment which does not involve uncertainties. Investment decision covers issues like the decisions regarding the amount of money for capital investment, the source of financing this investment, allocation of this investment among different projects over time. These decisions are of immense significance for ensuring the growth of an enterprise on sound lines.
Hence, decisions on investment are to be taken with utmost caution and care by the executive. Personnel Decision Page 13 An organization requires the services of a large number of personnel. These personnel occupy various positions. Each position of the organization has certain specific contributions to achieve organizational objectives. Personnel decisions cover the areas of manpower planning, recruitment, selection, training and development, performance appraisal, promotion, transfer, etc.
Business executives should take personnel decisions as an essential element. Definition, Characteristics and Scope Retrieved from http: Managerial Economics and Decision Making.
A Problem Solving Approach.