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Basic principles of managerial economics
Economic principles develop the analytical vigour of a manager. They help in logical reasoning and precise thinking. Principles that are useful for managerial decisions have been selected for discussion.
Following are managerial economics basic principles
Marginal and Incremental Principle
Opportunity Cost Principle
Time Perspective Principle
Role of managerial economist
Companies like Tatas, DCM, HLL and IPCL employ managerial economists to guide them in making appropriate economic decisions. A managerial economist makes an assessment of change in the consumer preferences, input prices, and related variables to make successful forecasts of their probable effect on the internal policies of the firm. They inform the management of a change in the competitive environment in which a firm functions, and suggest suitable policies for solution of problems like:
What product and services should be produced?
What inputs and production techniques should be used?
What are the best sizes and locations of the new plant?
How much output should be produced and at what prices should it be sold?
How should the available capital be allocated?
When should the equipment be replaced?
A managerial economist has to evaluate changes in the macroeconomic indicators like national income, population, and business cycles, and their likely impact on the functioning of the firm. He also studies the impact of changes in fiscal policy, monetary policy employment policy and the like on the functioning of the firm. These topics come under the purview of macroeconomics. Therefore, they deserve a separate treatment. The scope of managerial economics restricted to microeconomics.
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