There is a marginal economy containing those aspects of economic theory and application which are directly linked to the practice of management and the decision-making process of the business. It is a very pragmatic theory that is concerned with a lot of analytic tools which are important for business. It is a very important method for bridging the gap between abstract theory and managerial practice. The marginal economy is not only important for decision making but also includes several other subject matter of economy like demand analysis and forecasting, costing and production analysis, inventory management, advertising, and many more. Here in this article, there are several matters of the subject discussed in detail for a better understanding of the managerial economy which is following.
A firm is part of an economic organization that transforms the raw material into the final goods and sells its services in the market. For operating successful businesses need to correct the estimation of the demand of the produced product by the firms. A major part of managerial decision-making depends on the accurate estimation of demand. The analysis of demand can also guide management in maintaining or strengthening market position and also increasing the revenue of the business. Demand forecasting helps to identify the numerous other factors that affect the demand of the firm.
Product and cost analysis
Cost analysis is a very important part of the managerial economy. Decision-making is a crucial part of marginal economics and it also includes cost estimation in decision making. Several factors influence the cost like the price of raw materials, manufacturing cost, administrative cost, and many more. Business must be recognized before estimating the cost because it plays a significant role in the planning of a business activity. Cost of product is directly related to the output of product and profit as well. The cost uncertainty always exists because some factors are not controlled. The marginal economic allows the to business touches on these aspects of cost analysis as a piece of adequate knowledge and application of which factor can use for the success of the business.
On the other hand production analysis is the physical term. Correct input plays a significant role in good production. Production is the combination of a lot of work and research, production process, return scale, cost concept and classification, linear programming, and many more.
Inventory management contains the stock of raw materials which firms hold as stock for business operation. Now the problem is how much inventory will be sufficient for the ideal stock of the firm. If the inventory is either high or low, production will be affected.
For solving inventory problems managerial economics adopts the method of economic order quantity (EOQ) approach. This approach includes several other aspects such as the cost of holding inventory, inventory control, and methods of inventory control and management.
Production of goods and services is one thing and sold in the market is another aspect. The business goal is to tell people about the services before they buy them. For conveying the goods and services business needs to use an advertisement, promotion, and different marketing methods. An effective advertisement process can attract a large number of audiences.
Pricing decisions, policies, and practices
Pricing is containing a very important area of managerial economics. The control management of business shows not only the productions but also pricing as well. The pricing of the commodity depends on the cost of product manufacturing and is also influenced by the market structure that has evolved by the nature of competition existing in the market.
The price of a commodity is also affected by oligopoly and monopoly markets. The price system guides management intake is valid and profitable decisions.
Every business aims to maximize its profit. Profit of business highly relies on the performance of the business. Businesses should be understood the market and make a strategy for increasing profits. First businesses must take decisions according to the situation of the business and select alternatives for firms for optimum revenue.
It is also related to the projection of future earnings and involves the analysis of actual and expected behaviors of firms, the sales volume, prices and competitor’s strategies, and many more. Managerial economics tries to find out the causes and effects of relationships by actual and logical reasoning.
Planning and controlling capital expenditure is the basic function of principle. The capital management problem is examined from an economic standpoint. The capital budget process depends on business to business. It mainly involves the equi-marginal principle. The objective is to assure the most profit-able use of funds, which means that funds must be used to maximize returns for the business.
On the other hand, capital management also contains how much working capital is required for a business to operate, capital expenses required for purchasing fixed assets, and many more.
In this article, we discussed all the matters subject of marginal economics. Marginal economics plays a vital role in the decision-making of all the mentioned subject matter. I hope this information gives immense knowledge about managerial skills.