How can it help us make better decisions, in business or elsewhere? On the other hand, the second method is to forecast demand by using the past data through statistical techniques. This assumption gives good safe results till the time series exhibits a persistent tendency to move in the same direction. Production analysis: The managerial economics help in making cost-effective production, optimum use of the production cost. In this method, a large amount of reliable data is required for forecasting demand. In particular, they sometimes regard managerial economists as being apologists for greedy capitalists, who do not take quality of life into consideration, or the long-term interests of the public. This method has gained popularity with the development of electronic computers, calculators and other similar equipment and internet services. To establish relationship is not an easy task especially in case of New Product where there is no past records.
Understanding is also needed for a proper interpretation of results. Firms that offer rapid delivery to their customers will tend to force all competitors in the market to keep finished good inventories in order to provide fast order cycle times. It is a more scientific method of estimating likely demand because it stimulates a national launch in a closely defined geographical area. They help us in understanding the underlying forces of the complex world of reality through approximation. At different levels forecasting may be classified into: i Macro-level forecasting, ii Industry- level forecasting, iii Firm- level forecasting and iv Product-line forecasting. Trend Projection Method : Trend projection or least square method is the classical method of business forecasting.
Robbins regards economics as a pure science of what is, which is not concerned with moral or ethical questions. An order cycle could take weeks or months to go back through part suppliers and sub-assemblers, through manufacture of the product, and through to the eventual shipment of the order to the customer. Managerial economics is a discipline that combines economic theory with managerial practice. It refers to a procedure or mode of investigation by which scientific and systematic knowledge is acquired. Financial managers use economic techniques to make estimates of future cash flows from investments in new plants and equipment.
Each position of the organisation has certain specific contributions to achieve organisational objectives. Exponential Trend: Implies a trend in which sales increase over the past years at an increasing rate or constant rate. . Economists and statisticians have developed several methods of demand forecasting. He has to help the firm to plan product improvement, new product policy, and pricing and sales promotion strategy.
The application of economic theory through statistical methods helps businesses make decisions and determine strategy on pricing, operations, risk, investments and production. They better understand the reactions of the customers to the firms products and their sales trends. Therefore, it is better to use geographical segmentation for marketing the product, as no loss is involved in it. And it provides Micro Economics orientation toManagerial Economics. The firm uses these macro-forecast of general economic activity as inputs for their micro-forecasts of the industries and, firm's demand and sales. Much of the development of techniques and concepts such as Linear Programming, Dynamic Programming, Input-output Analysis, Inventory Theory, Information Theory, Probability Theory, Queueing Theory, Game Theory, Decision Theory and Symbolic Logic.
These estimates are revised from time to time with changes in sales price, product, designs, publicity programmes, expected changes in competition, purchasing power, income distribution, employment and population. In managerial economics, we are interested in what should happen rather than what does happen. The opportunity lost earning Rs. Economic analysis is required for various concepts such as demand, profit, cost, and competition. The outcome of the demographic segmentation can be good, moderate, and poor. For example, short-term decisions in production planning, distribution etc and selling individual products would require short-term forecast, up-to one year time horizon, which must he fairly accurate for specific product items. Mathematical and statistical techniques are essential in classifying relationships and providing techniques of analysis, but they are in no way an alternative for sound judgement.
Is there any special emphasis for industrial promotion? There are different methods for setting advertising budget: Percentage of Sales Approach, All You can Afford Approach, Competitive Parity Approach, Objective and Task Approach and Return on Investment Approach. Long term forecasts are helpful in suitable capital planning. Demand estimation is an integral part of decision making, an assessment of future sales helps in strengthening the market position and maximizing profit. Some of the important management decisions are production decision, inventory decision, cost decision, marketing decision, financial decision, personnel decision and miscellaneous decisions. It gives managers the tools and techniques to use for day-to-day decision-making and to utilize resources more efficiently.
We shall now proceed to discuss the last part of our investigation the responsibilities of a managerial economist. Towards this end, the firm1. If demand is affected by many variables, then it is called multi-variable demand function. The value of future sales is crucial as it affects costs profits, so the prediction of future sales is the logical starting point of all business planning. The post-Keynesian aggregative theory has direct implications for forecasting general business conditions.
Therefore it needs to be clarified that managerial economics can still be applied in such situations. Techniques or Methods of Marginal Economics: 6 most important methods used by managerial economics to explain and solve business problems of a firm: i Scientific Method : Scientific method is a branch of study which is concerned with observed facts systematically classified and which includes trustworthy method for the discovery of truths. Since the descriptive method wants to relate causality of the collected facts, it is necessary for it to make comparisons between one situation with the other and among different aspects of the same situation. Dis-advantages: 1 It is a subjective approach. In this method, some areas of markets are selected with similar features, such as population, income levels, cultural background, and tastes of consumers. In fine, managerial economics is a branch of normative economics that draws from descriptive economics and from well established deductive patterns of logic.