Managerial Economics Paper
Managerial Economics Paper Question 1:
Define managerial economics and its relation with economics theory and decision science?
Managerial economics concern with The There are many ways to do this Business Executives and other policy-makers should consider Decisions.
Managerial Economics attempts at bridging The Gap between Economic theory And The Day-to-day Decision Managing managers. Provides a range of tools and methods for managing your employees. Managerial Policymaking
Economic theory deals primarily with the study both of an individual firm and individual consumer. managerial theory focuses on a single firm. Economic theory studies the distribution theories of rents, wages, and profits. Managerial theory focuses on profit theories.
The system of inter-relationships is called Economic Theory. Economic theory is one of the most sophisticated social sciences. Economic theory has many well-defined structures. The postulation, or axiomatic, method of theory formulation is one of the most popular structures.
It maintains that the logical core of theory is made up of postulates, their predictions and which forms the basis for economic reasoning and analysis. The empirical part of the theory cannot be separated from this logical core. Economics is a system of logic that is consistent. The theory of competitive equilibrium is based entirely on the axiomatic method. The underlying principle of competitive equilibrium is the interrelationships. This applies to both inductive generalizations and deductive inferences.
Role in decision making:
Managerial Economics assists managers in deciding on the planning and control for the benefits. Managerial Economics is the synchronization between planning and controlling any institution or firm, and its importance rises.
Economics can help you make better decisions. The more educated a person is, the better the chances of making wise decisions. Economics will teach you how supply and demand impact price, wages, availability, and other factors.
Managerial economics is meant to enhance the managerial conceptual and technical skills. It focuses on the economic behavior of a firm. It focuses on the firm’s decision process, decision model, and decision variables. It’s the use of economic analysis to assess business decisions.
Managers are responsible for making decisions and planning ahead in uncertain business situations. Production decision, inventory decision cost decision marketing decision, cost decision, pricing decision, the financial decision as well as personnel and miscellaneous decision are some of the most important managerial decisions. A good executive must be able to make quick decisions. He should be clear about his goals and be able to use all information available to him, weigh the pros and cons, and take quick decisions.
These decisions are made to reach certain goals. The motivating factors for making decisions are objectives. To achieve the objectives, many actions are required. Quantitative techniques can also be used in decision-making. It is possible to see that only acts and quantitative techniques will produce desired results. Managers must remember that there are other variables, such as human and behavioral considerations, technological forces, and environmental factors that can influence their decisions.
Managerial Economics Paper Question No 3:
How do Managerial Economists help the Manager in decision making and forward planning?
Managerial economics is useful in coordinating the various activities of a business. Managerial economics provides useful tools for economics managers in demand forecasts and is useful in demanding production planning. The managerial economy deals with future losses easily.
A Managerial economist in a business firm may carry on a wide range of duties, such as: Demand estimation and forecasting. Preparation of business forecasts; to provide forecasts of changes in costs and business conditions based on market research and policy analysis, Analysis of the market survey to determine the nature and extent of competition
Analyzing the issues and problems of the concerned industry. Assisting the business planning process of the firm. Discovering new and possible fields of business endeavor and its cost-benefit analysis as well as feasibility studies. Advising on pricing, investment, and capital budgeting policies. Evaluation of capital budgets.
Building micro and macro-economic models of particular aspects of the firm’s activities that are useful in solving specific business problems. Most models may be prediction-oriented. Directing economic research activity. Briefing the management on current domestic and global economic issues and challenges.
Managerial Economics Paper Question no 4:
Explain the steps of estimation of demand function using econometrics techniques in your own words?
The best of all solution to estimate the demand in terms of economics is to do demand forecasting which I may use in the following way.
What is Demand Forecasting?
Demand Forecasting This is a method of estimating the future demand based on past and present knowledge and experience. It is intended to avoid underproduction and overproduction.
This may be based upon estimates of the industry’s demand potential. All marketing control efforts are guided by the demand forecasting. It is essential in modern business.
Steps to Demand Forecasting
Forecasting the demand It is a scientific process. There are many steps involved. Critical considerations must be made at each step.
Steps to Demand Forecasting These are:
- Identification of the Objective
- Nature of Product and Market
- Demand Determinants
- Analysis of Factors
- Choose a Method
Identification of the Objective
First, the economist must be aware of the use of forecast data and its relationship to forward planning. The type of forecast that the economist should choose depends on the situation.
Nature of Product and Market
The nature of the product or service is important when forecasting demand. Forecasting demand requires careful consideration of whether the product is perishable, durable or a consumer good.
You should also take into account the stage of the product, i.e. It should also consider the stage at which the product is in its life cycle, i.e., introduction, growth maturity and saturation or obsolescence, decline.
Last but not least, it is important to consider the nature of market competition (perfect and imperfect).
Different determinants will have a different importance in different demand functions depending on the product or forecasts.
Analyze of Factors
It is common to classify explanatory factors in an analysis of the statistical demand function.
- Trend factors
- Cyclical factors
- Seasonal factors
- Random factors
An analysis of the factors is particularly important, depending on whether it is the total demand in the economy, the industry’s or the company’s or consumer’s market that is being predicted.
Choose from a variety of methods
The product’s nature dictates that the economist must choose one of several techniques for demand forecasting.
There are many ways to test statistical accuracy of a forecast. Some are easy and cheap, while others can be quite complicated and challenging.
This testing is necessary to reduce forecasting errors and improve decision-making.
Features Forecasting of Demand g
Eight major Features of the Demand Forecasting Method can be identified using forecasting techniques (techniques), to identify key characteristics for a good demand forecasting system.
Features of Demand Forecasting
The time horizon over which a decision will be made determines the type of technique to use. With an increase in time horizon, the probability of forecasting errors decreases.
Detailing to the Max
The forecast should be as detailed as possible to match the focal point of the decision-making unit.
Take, for example. Production planning must decide at the product level. Corporate planning will likely be content with aggregate demand forecasts for product categories.
Forecasting in stable situations over time takes less effort than forecasting in unstable situations. Stable situations are those where the current pattern will continue into the future. Past patterns can easily be extrapolated into the future.
Pattern of Data
It is important that data necessary to determine the underlying relationships be made available promptly. Every forecasting method relies on an assumption about the data.
Different forecasting methods are capable of identifying different patterns differently so it is important to match the data with the one that best suits the data.
Type of model
Each forecasting method also makes assumptions that need to be adapted to the particular situation. To give meaningful and quick results, the management should understand the technique.
There are many costs associated with forecasting. The choice of forecasting method is affected by the cost variation. It is important to weigh the economic benefits and the additional cost of forecasting.
It measures the difference between past forecasts, actual performance, or future forecasts, and how much it differs from them. It is reliable if the probable state is close to the actual state.
The models must be understood by the users and used within the allowed time. This will allow management to interpret the results correctly. In selecting the method, simplicity is important.