MANAGERIAL ECONOMICS Introduction to Economics Economics is a study of human activity both at individual and national level.

The economists of early age treated economics merely as the science of wealth. The reason for this is clear. Every one of us in involved in efforts aimed at earning money and spending this money to satisfy our wants such as food, Clothing, shelter, and others. Such activities of earning and spending money are called Economic activities. It was only during the eighteenth century that dam Smith, the !ather of Economics, defined economics as the study of nature and uses of national wealth". #r. lfred $arshall, one of the greatest economists of the nineteenth century, writes Economics is a study of man"s actions in the ordinary business of life% it en&uires how he gets his income and how he uses it. Thus, it is one side, a study of wealth' and on the other, and more important side' it is the study of man. s $arshall observed, the chief aim of economics is to promote (human welfare", but not wealth. The definition given by C )igou endorses the opinion of $arshall. )igou defines Economics as the study of economic welfare that can be brought directly and indirectly, into relationship with the measuring rod of money. )rof. *ionel +obbins defined Economics as the science, which studies human behaviour as a relationship between ends and scarce means which have alternative uses. ,ith this, the focus of economics shifted from (wealth" to human behaviour". *ord -eynes defined economics as (the study of the administration of scarce means and the determinants of employments and income. Microeconomics: The study of an individual consumer or a firm is called microeconomics .also called the Theory of !irm/. $icro means (one millionth". $icroeconomics deals with behavior and problems of single individual and of micro organi0ation. $anagerial economics has its roots in microeconomics and it deals with the micro or individual enterprises. It is concerned with the application of the concepts such as price theory, *aw of #emand and theories of mar1et structure and so on.

Macroeconomics: The study of (aggregate" or total level of economics activity in a country is called macroeconomics. It studies the flow of economics resources or factors of production .such as land, labor, capital,

organi0ation and technology/ from the resource owner to the business firms and then from the business firms to the households. It deals with total aggregates, for instance, total national income total employment, output and total investment. It studies the interrelations among various aggregates and e2amines their nature and behaviour, their determination and causes of fluctuations in the. It deals with the price level in general, instead of studying the prices of individual commodities. It is concerned with the level of employment in the economy. It discusses aggregate consumption, aggregate investment, price level, and payment, theories of employment, and so on. Though macroeconomics provides the necessary framewor1 in term of government policies etc., for the firm to act upon dealing with analysis of business conditions, it has less direct relevance in the study of theory of firm. Management $anagement is the science and art of getting things done through people in formally organi0ed groups. It is necessary that every organi0ation be well managed to enable it to achieve its desired goals. $anagement includes a number of functions% )lanning, organi0ing, staffing, directing, and controlling. The manager while directing the efforts of his staff communicates to them the goals, ob3ectives, policies, and procedures' coordinates their efforts' motivates them to sustain their enthusiasm' and leads them to achieve the corporate goals.

. Managerial Economics
Introduction $anagerial Economics as a sub3ect gained popularity in 4S after the publication of the boo1 $anagerial Economics by 5oel #ean in 6786. $anagerial Economics refers to the firm"s decision ma1ing process. It could be also interpreted as Economics of $anagement or Economics of $anagement. $anagerial Economics is also called as Industrial Economics or 9usiness Economics. s 5oel #ean observes managerial economics shows how economic analysis can be used in formulating polices.

Concept of Managerial Economics

The discipline of managerial economics deals with aspects of economics and tools of analysis, which are employed by business enterprises for decision:ma1ing. 9usiness and industrial enterprises have to underta1e varied decisions that entail managerial issues and decisions. #ecision:ma1ing can be delineated as a process where a particular course of action is chosen from

a number of alternatives. This demands an unclouded perception of the technical and environmental conditions, which are integral to decision ma1ing. The decision ma1er must possess a thorough 1nowledge of aspects of economic theory and its tools of analysis. The basic concepts of decision:ma1ing theory have been culled from microeconomic theory and have been furnished with new tools of analysis. Statistical methods, for e2ample, are pivotal in estimating current and future demand for products. The methods of operations research and programming proffer scientific criteria for ma2imi0ing profit, minimi0ing cost and determining a viable combination of products. #ecision:ma1ing theory and game theory, which recogni0e the conditions of uncertainty and imperfect 1nowledge under which business managers operate, have contributed to systematic methods of assessing investment opportunities. lmost any business decision can be analy0ed with managerial economics techni&ues. ;owever, the most fre&uent applications of these techni&ues are as follows% < Risk analysis: =arious models are used to &uantify ris1 and asymmetric information and to employ them in decision rules to manage ris1. < Production analysis: $icroeconomic techni&ues are used to analy0e production efficiency, optimum factor allocation, costs and economies of scale. They are also utili0ed to estimate the firm>s cost function. < Pricing analysis: $icroeconomic techni&ues are employed to e2amine various pricing decisions. This involves transfer pricing, 3oint product pricing, price discrimination, price elasticity estimations and choice of the optimal pricing method. < Capital udgeting: Investment theory is used to scrutini0e a firm>s capital purchasing decisions

MEANING OF MANAGERIAL ECONOMICS

$anagerial economics, used synonymously with business economics, is a branch of economics that deals with the application of microeconomic analysis to decision:ma1ing techni&ues of businesses and management units. It acts as the via media between economic theory and pragmatic economics. $anagerial economics bridges the gap between >theoria> and >pracis>. The tenets of managerial economics have been derived from &uantitative techni&ues such as regression analysis, correlation and *agrangian calculus .linear/. n omniscient and unifying theme found in managerial economics is the attempt to achieve optimal results from business decisions, while ta1ing into account the firm>s ob3ectives, constraints imposed by scarcity and so on. paradigm of such optmisation is the use of operations research and programming. $anagerial economics is thereby a study of application of managerial s1ills in economics. It helps in anticipating, determining and resolving potential problems or obstacles. These problems may pertain to costs, prices, forecasting future mar1et, human resource management, profits and so on. !E"INI#IONS O" MANAGERIAL ECONOMICS

McGutgan and Moyer: $anagerial economics is the application of economic theory and
methodology to decision:ma1ing problems faced by both public and private institutions.

McNair and Meriam: $anagerial economics consists of the use of economic modes of thought
to analyse business situations.

Spencer and Siegelman: $anagerial economics is the integration of economic theory with
business practice for the purpose of facilitating decision:ma1ing and forward planning by management. $aynes% Mote and Paul: $anagerial economics refers to those aspects of economics and its tools of analysis most relevant to the firm"s decision:ma1ing process. 9y definition, therefore, its scope does not e2tend to macroeconomic theory and the economics of public policy, an understanding of which is also essential for the manager. $anagerial economics studies the application of the principles, techni&ues and concepts of economics to managerial problems of business and industrial enterprises. The term is used interchangeably with business economics, microeconomics, economics of enterprise, applied economics, managerial analysis and so on. $anagerial economics lies at the 3unction of economics and business management and traverses the hiatus between the two disciplines. C$ARAC#ERIS#ICS O" MANAGERIAL ECONOMICS &' Microeconomics: It studies the problems and principles of an individual business firm or an individual industry. It aids the management in forecasting and evaluating the trends of the mar1et. (' Normati)e economics: It is concerned with varied corrective measures that a management underta1es under various circumstances. It deals with goal determination, goal development and achievement of these goals. !uture planning, policy:ma1ing, decision:ma1ing and optimal utilisation of available resources, come under the banner of managerial economics. *' Pragmatic: $anagerial economics is pragmatic. In pure micro:economic theory, analysis is performed, based on certain e2ceptions, which are far from reality. ;owever, in managerial economics, managerial issues are resolved daily and difficult issues of economic theory are 1ept at bay. +' ,ses t-eory o. .irm: $anagerial economics employs economic concepts and principles, which are 1nown as the theory of !irm or >Economics of the !irm>. Thus, its scope is narrower than that of pure economic theory. /' #akes t-e -elp o. macroeconomics: $anagerial economics incorporates certain aspects of macroeconomic theory. These are essential to comprehending the circumstances and environments that envelop the wor1ing conditions of an individual firm or an industry. -nowledge of macroeconomic issues such as business cycles, ta2ation policies, industrial policy of the

government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise 0' Aims at -elping t-e management: $anagerial economics aims at supporting the management in ta1ing corrective decisions and charting plans and policies for future. 1' A scienti.ic art: Science is a system of rules and principles engendered for attaining given ends. Scientific methods have been credited as the optimal path to achieving one>s goals. $anagerial economics has been is also called a scientific art because it helps the management in the best and efficient utilisation of scarce economic resources. It considers production costs, demand, price, profit, ris1 etc. It assists the management in singling out the most feasible alternative. $anagerial economics facilitates good and result oriented decisions under conditions of uncertainty. 2' Prescripti)e rat-er t-an descripti)e: $anagerial economics is a normative and applied discipline. It suggests the application of economic principles with regard to policy formulation, decision:ma1ing and future planning. It not only describes the goals of an organi0ation but also prescribes the means of achieving these goals.

Nature o. Managerial Economics

$anagerial economics is, perhaps, the youngest of all the social sciences. Since it originates from Economics, it has the basis features of economics, such as assuming that other things remaining the same .or the *atin e&uivalent ceteris paribus/. This assumption is made to simplify the comple2ity of the managerial phenomenon under study in a dynamic business environment so many things are changing simultaneously. This set a limitation that we cannot really hold other things remaining the same. In such a case, the observations made out of such a study will have a limited purpose or value. $anagerial economics also has inherited this problem from economics. !urther, it is assumed that the firm or the buyer acts in a rational manner .which normally does not happen/. The buyer is carried away by the advertisements, brand loyalties, incentives and so on, and, therefore, the innate behaviour of the consumer will be rational is not a realistic assumption. 4nfortunately, there are no other alternatives to understand the sub3ect other than by ma1ing such assumptions. This is because the behaviour of a firm or a consumer is a comple2 phenomenon.

The other features of managerial economics are e2plained as below% (a) Close to microeconomics% $anagerial economics is concerned with finding the solutions for different managerial problems of a particular firm. Thus, it is more close to microeconomics. (b) Operates against the backdrop of macroeconomics % The macroeconomics conditions of the economy are also seen as limiting factors for the firm to operate. In other words, the

(c)

(d)

(e)

(f)

(g)

(h)

managerial economist has to be aware of the limits set by the macroeconomics conditions such as government industrial policy, inflation and so on. Normative statements% normative statement usually includes or implies the words (ought" or (should". They reflect people"s moral attitudes and are e2pressions of what a team of people ought to do. !or instance, it deals with statements such as (?overnment of India should open up the economy. Such statement are based on value 3udgments and e2press views of what is (good" or (bad", (right" or ( wrong". @ne problem with normative statements is that they cannot to verify by loo1ing at the facts, because they mostly deal with the future. #isagreements about such statements are usually settled by voting on them. Prescriptive actions% )rescriptive action is goal oriented. ?iven a problem and the ob3ectives of the firm, it suggests the course of action from the available alternatives for optimal solution. If does not merely mention the concept, it also e2plains whether the concept can be applied in a given conte2t on not. !or instance, the fact that variable costs are marginal costs can be used to 3udge the feasibility of an e2port order. Applied in nature% ($odels" are built to reflect the real life comple2 business situations and these models are of immense help to managers for decision:ma1ing. The different areas where models are e2tensively used include inventory control, optimi0ation, pro3ect management etc. In managerial economics, we also employ case study methods to conceptuali0e the problem, identify that alternative and determine the best course of action. Offers scope to evaluate each alternative% $anagerial economics provides an opportunity to evaluate each alternative in terms of its costs and revenue. The managerial economist can decide which is the better alternative to ma2imi0e the profits for the firm. Interdisciplinary% The contents, tools and techni&ues of managerial economics are drawn from different sub3ects such as economics, management, mathematics, statistics, accountancy, psychology, organi0ational behavior, sociology and etc. Assumptions and limitations% Every concept and theory of managerial economics is based on certain assumption and as such their validity is not universal. ,here there is change in assumptions, the theory may not hold good at all.

SCOPE O" MANAGERIAL ECONOMICS The scope of managerial economics includes following sub3ects% 6. Theory of demand A. Theory of production B. Theory of e2change or price theory C. Theory of profit

8. Theory of capital and investment D. Environmental issues, which are enumerated as follows% &' #-eory o. !emand: ccording to Spencer and Siegelman, business firm is an economic organi0ation which transforms productivity sources into goods that are to be sold in a mar1et. a' !emand analysis: nalysis of demand is underta1en to forecast demand, which is a fundamental component in managerial decision:ma1ing. #emand forecasting is of importance because an estimate of future sales is a primer for preparing production schedule and employing productive resources. #emand analysis helps the management in identifying factors that influence the demand for the products of a firm. Thus, demand analysis and forecasting is of prime importance to business planning. ' !emand t-eory: #emand theory relates to the study of consumer behaviour. It addresses &uestions such as what incites a consumer to buy a particular product, at what price does heEshe purchase the product, why do consumers cease consuming a commodity and so on. It also see1s to determine the effect of the income, habit and taste of consumers on the demand of a commodity and analyses other factors that influence this demand. (' #-eory o. Production: )roduction and cost analysis is central for the unhampered functioning of the production process and for pro3ect planning. )roduction is an economic activity that ma1es goods available for consumption. )roduction is also defined as a sum of all economic activities besides consumption. It is the process of creating goods or services by utilising various available resources. chieving a certain profit re&uires the production of a certain amount of goods. To obtain such production levels, some costs have to be incurred. t this point, the management is faced with the tas1 of determining an optimal level of production where the average cost of production would be minimum. )roduction function shows the relationship between the &uantity of a goodEservice produced .output/ and the factors or resources .inputs/ used. The inputs employed for producing these goods and services are called factors of production. a' 3aria le .actor o. production: The input level of a variable factor of production can be varied in the short run. +aw material inputs are deemed as variable factors. 4ns1illed labor is also considered in the category of variable factors. ' "i4ed .actor o. production: The input level of a fi2ed factor cannot be varied in the short run. Capital falls under the category of a fi2ed factor. Capital alludes to resources such as buildings, machinery etc. )roduction theory facilitates in determining the si0e of firm and the level of production. It elucidates the relationship between average and marginal costs and production. It highlights how a change in production can bring about a parallel change in average and marginal costs. )roduction theory also deals with other issues such as conditions leading to increase or decrease in costs, changes in total production when one factor of production is varied and others are 1ept constant, substitution of one factor with another while 1eeping all increased simultaneously and methods of achieving optimum production.

*' #-eory o. E4c-ange or Price #-eory: Theory of E2change is popularly 1nown as )rice Theory. )rice determination under different types of mar1et conditions comes under the wingspan of this theory. It helps in determining the level to which an advertisement can be used to boost mar1et sales of a firm. )rice theory is pivotal in determining the price policy of a firm. )ricing is an important area in managerial economics. The accuracy of pricing decisions is vital in shaping the success of an enterprise. )rice policy impresses upon the demand of products. It involves the determination of prices under different mar1et conditions, pricing methods, pricing policies, differential pricing, product line pricing and price forecasting. +' #-eory o. pro.it: Every business and industrial enterprise aims at ma2imising profit. )rofit is the difference between total revenue and total economic cost. )rofitability of an organi0ation is greatly influenced by the following factors% < #emand of the product < )rices of the factors of production < Fature and degree of competition in the mar1et < )rice behaviour under changing conditions ;ence, profit planning and profit management are important re&uisites for improving profit earning efficiency of the firm. )rofit management involves the use of most efficient techni&ue for predicting the future. The probability of ris1s should be minimised as far as possible. /' #-eory o. Capital and In)estment: Theory of Capital and Investment evinces the following important issues% < Selection of a viable investment pro3ect < Efficient allocation of capital < ssessment of the efficiency of capital < $inimising the possibility of under capitalisation or overcapitalisation. Capital is the building bloc1 of a business. *i1e other factors of production, it is also scarce and e2pensive. It should be allocated in most efficient manner. 0' En)ironmental issues: $anagerial economics also encompasses some aspects of macroeconomics. These relate to social and political environment in which a business and industrial firm has to operate. This is governed by the following factors% < The type of economic system of the country < 9usiness cycles < Industrial policy of the country < Trade and fiscal policy of the country < Ta2ation policy of the country < )rice and labor policy < ?eneral trends in economy concerning the production, employment, income, prices, saving and investment etc. < ?eneral trends in the wor1ing of financial institutions in the country < ?eneral trends in foreign trade of the country < Social factors li1e value system of the society < ?eneral attitude and significance of social organisations li1e trade unions, producers" unions and consumers" cooperative societies etc. < Social structure and class character of various social groups

< )olitical system of the country The management of a firm cannot e2ercise control over these factors. Therefore, it should fashion the plans, policies and programmes of the firm according to these factors in order to offset their adverse effects on the firm.

Managerial economics relations-ip 5it- ot-er disciplines:

$any new sub3ects have evolved in recent years due to the interaction among basic disciplines. ,hile there are many such new sub3ects in natural and social sciences, managerial economics can be ta1en as the best e2ample of such a phenomenon among social sciences. ;ence it is necessary to trace its roots and relation ship with other disciplines. 1 !elationship "ith economics# The relationship between managerial economics and economics theory may be viewed from the point of view of the two approaches to the sub3ect =i0. $icro Economics and $arco Economics. $icroeconomics is the study of the economic behavior of individuals, firms and other such micro organi0ations. $anagerial economics is rooted in $icro Economic theory. $anagerial Economics ma1es use to several $icro Economic concepts such as marginal cost, marginal revenue, elasticity of demand as well as price theory and theories of mar1et structure to name only a few. $acro theory on the other hand is the study of the economy as a whole. It deals with the analysis of national income, the level of employment, general price level, consumption and investment in the economy and even matters related to international trade, $oney, public finance, etc. The relationship between managerial economics and economics theory is li1e that of engineering science to physics or of medicine to biology. $anagerial economics has an applied bias and its wider scope lies in applying economic theory to solve real life problems of enterprises. 9oth managerial economics and economics deal with problems of scarcity and resource allocation. $ %anagement theory and accounting# $anagerial economics has been influenced by the developments in management theory and accounting techni&ues. ccounting refers to the recording of pecuniary transactions of the firm in certain boo1s. proper 1nowledge of accounting techni&ues is very essential for the success of the firm because profit ma2imi0ation is the ma3or ob3ective of the firm. $anagerial Economics re&uires a proper 1nowledge of cost and revenue information and their classification. student of managerial economics should be familiar with the generation, interpretation and use of accounting data. The focus of accounting within the firm is fast changing

from the concepts of store 1eeping to that if managerial decision ma1ing, this has resulted in a new speciali0ed area of study called $anagerial ccounting. & %anagerial 'conomics and mathematics# The use of mathematics is significant for managerial economics in view of its profit ma2imi0ation goal long with optional use of resources. The ma3or problem of the firm is how to minimi0e cost, hoe to ma2imi0e profit or how to optimi0e sales. $athematical concepts and techni&ues are widely used in economic logic to solve these problems. lso mathematical methods help to estimate and predict the economic factors for decision ma1ing and forward planning. $athematical symbols are more convenient to handle and understand various concepts li1e incremental cost, elasticity of demand etc., ?eometry, lgebra and calculus are the ma3or branches of mathematics which are of use in managerial economics. The main concepts of mathematics li1e logarithms, and e2ponentials, vectors and determinants, input:output models etc., are widely used. 9esides these usual tools, more advanced techni&ues designed in the recent years vi0. linear programming, inventory models and game theory fine wide application in managerial economics. ( %anagerial 'conomics and )tatistics# $anagerial Economics needs the tools of statistics in more than one way. successful businessman must correctly estimate the demand for his product. ;e should be able to analyses the impact of variations in tastes. !ashion and changes in income on demand only then he can ad3ust his output. Statistical methods provide and sure base for decision:ma1ing. Thus statistical tools are used in collecting data and analy0ing them to help in the decision ma1ing process. Statistical tools li1e the theory of probability and forecasting techni&ues help the firm to predict the future course of events. $anagerial Economics also ma1e use of correlation and multiple regressions in related variables li1e price and demand to estimate the e2tent of dependence of one variable on the other. The theory of probability is very useful in problems involving uncertainty. * %anagerial 'conomics and Operations !esearch# Ta1ing effectives decisions is the ma3or concern of both managerial economics and operations research. The development of techni&ues and concepts such as linear programming, inventory models and game theory is due to the development of this new sub3ect of operations research in the postwar years. @perations research is concerned with the comple2 problems arising out of the management of men, machines, materials and money. @peration research provides a scientific model of the system and it helps managerial economists in the field of product development, material management, and inventory control, &uality control,

mar1eting and demand analysis. The varied tools of operations +esearch are helpful to managerial economists in decision:ma1ing. + %anagerial 'conomics and the theory of ,ecision- making# The Theory of decision:ma1ing is a new field of 1nowledge grown in the second half of this century. $ost of the economic theories e2plain a single goal for the consumer i.e., )rofit ma2imi0ation for the firm. 9ut the theory of decision:ma1ing is developed to e2plain multiplicity of goals and lot of uncertainty. s such this new branch of 1nowledge is useful to business firms, which have to ta1e &uic1 decision in the case of multiple goals. =iewed this way the theory of decision ma1ing is more practical and application oriented than the economic theories. . %anagerial 'conomics and Computer )cience# Computers have changes the way of the world functions and economic or business activity is no e2ception. Computers are used in data and accounts maintenance, inventory and stoc1 controls and supply and demand predictions. ,hat used to ta1e days and months is done in a few minutes or hours by the computers. In fact computeri0ation of business activities on a large scale has reduced the wor1load of managerial personnel. In most countries a basic 1nowledge of computer science, is a compulsory programmed for managerial trainees. To conclude, managerial economics, which is an offshoot traditional economics, has gained strength to be a separate branch of 1nowledge. It strength lies in its ability to integrate ideas from various speciali0ed sub3ects to gain a proper perspective for decision:ma1ing. successful managerial economist must be a mathematician, a statistician and an economist. ;e must be also able to combine philosophic methods with historical methods to get the right perspective only then' he will be good at predictions. In short managerial practices with the help of other allied sciences.

#$E ROLE O" MANAGERIAL ECONOMIS#

$a1ing decisions and processing information are the two primary tas1s of the managers. $anagerial economists have gained importance in recent years with the emergence of an organi0ational culture in production and sales activities. management economist with sound 1nowledge of theory and analytical tools for information system occupies a prestigious place among the personnel. managerial economist is nearer to the policy:ma1ing. E&uipped with speciali0ed s1ills and modern techni&ues he analyses the internal and e2ternal operations of the firm. ;e evaluates and helps in decision ma1ing regarding sales,

)ricing financial issues, labor relations and profitability. ;e helps in decision:ma1ing 1eeping in view the different goals of the firm. ;is role in decision:ma1ing applies to routine affairs such as price fi2ation, improvement in &uality, *ocation of plant, e2pansion or contraction of output etc. The role of managerial economist in internal management covers wide areas of production, sales and inventory schedules of the firm. The most important role of the managerial economist relates to demand forecasting because an analysis of general business conditions is most vital for the success of the firm. ;e prepares a short:term forecast of general business activity and relates general economic forecasts to specific mar1et trends. $ost firms re&uire two forecasts one covering the short term .for nest three months to one year/ and the other covering the long term, which represents any period e2ceeding one: year. ;e has to be ever alert to gauge the changes in tastes and preferences of the consumers. ;e should evaluate the mar1et potential. The need to 1now forecasting techni&ues on the part of the managerial economics means, he should be adept at mar1et research. The purpose of mar1et research is to provide a firm with information about current mar1et position as well as present and possible future trends in the industry. managerial economist who is well e&uipped with this 1nowledge can help the firm to plan product improvement, new product policy, pricing, and sales promotion strategy. The fourth function of the managerial economist is to underta1e an economic analysis of the industry. This is concerned with pro3ect evaluation and feasibility study at the firm level i.e., he should be able to 3udge on the basis of cost benefit analysis, whether it is advisable and profitable to go ahead with the pro3ect. The managerial economist should be adept at investment appraisal methods. t the e2ternal level, economic analysis involves the 1nowledge of competition involved, possibility of internal and foreign sales, the general business climate etc. nother function is security management analysis. This is very important in the case of defense: oriented industries, power pro3ects, and nuclear plants where security is very essential. Security management means, also that the production and trade secrets concerning technology, &uality and other such related facts should not be lea1ed out to others. This security is more necessary in strategic and defense:oriented pro3ects of national importance' a managerial economist should be able to manage these issues of security management analysis. The si2th function is an advisory function. ;ere his advice is re&uired on all matters of production and trade. In the hierarchy of management, a managerial economist ran1s ne2t to the top e2ecutives or the policy ma1er who may be doyens of several pro3ects. It is the managerial economist of each firm who has to advise them on all matters of trade since they are in the 1now of actual functioning of the unit in all aspects, both technical and financial. nother function of importance for the managerial economist is a concerned with pricing and related problems. The success of the firm depends upon a proper pricing strategy. The pricing decision is one of the most difficult decisions to be made in business because the information

re&uired is never fully available. )ricing of established products is different from new products. ;e may have to operate in an atmosphere constrained by government regulation. ;e may have to anticipate the reactions of competitors in pricing. The managerial economist has to be very alert and dynamic to ta1e correct pricing decision in changing environment. !inally the specific function of a managerial economist includes an analysis of environment issues. $odern theory of managerial economics recogni0es the social responsibility of the firm. It refers to the impact of a firm on environmental factors. It should not have adverse impact on pollution and if possible try to contribute to environmental preservation and protection in a positive way. The role of management economist lies not in ta1ing decision but in analy0ing, concluding and recommending to the policy ma1er. ;e should have the freedom to operate and analy0e and must possess full 1nowledge of facts. ;e has to collect and provide the &uantitative data from within the firm. ;e has to get information on e2ternal business environment such as general mar1et conditions, trade cycles, and behavior pattern of the consumers. The managerial economist helps to co:ordinate policies relating to production, investment, inventories and price. Speci.ic "unctions further idea of the role of managerial economists can be seen from the following specific functions performed by them as revealed by a survey pertaining to 9ritain conducted by -.5.,. le2ander and le2ander ?. -emp %: 6. Sales forecasting. A. Industrial mar1et research. B. Economic analysis of competing companies. C. )ricing problems of industry. 8. Capital pro3ects. D. )roduction programs. G. SecurityEinvestment analysis and forecasts. H. 7. dvice on trade and public relations. dvice on primary commodities.

6I. dvice on foreign e2change. 66. Economic analysis of agriculture 6A. . nalysis of underdeveloped economics. 6B. Environmental forecasting.

The managerial economist has to gather economic data, analy0e all pertinent information about the business environment and prepare position papers on issues facing the firm and the industry. In the case of industries prone to rapid technological advances, he may have to ma1e a continuous assessment of the impact of changing technology. ;e may have to evaluate the capital budget in the light of short and long:range financial, profit and mar1et potentialities. =ery often, he may have to prepare speeches for the corporate e2ecutives. It is thus clear that in practice managerial economists perform many and varied functions. ;owever, of these, mar1eting functions, i.e., sales forecasting and industrial mar1et research, has been the most important. !or this purpose, they may compile statistical records of the sales performance of their own business and those relating to their rivals, carry our analysis of these records and report on trends in demand, their mar1et shares, and the relative efficiency of their retail outlets.

Economic Intelligence 9esides these functions involving sophisticated analysis, managerial economist may also provide general intelligence service supplying management with economic information of general interest such as competitor"s prices and products, ta2 rates, tariff rates, etc. In fact, a good deal of published material is already available and it would be useful for a firm to have someone who understands it. The managerial economist can do the 3ob with competence. Participating in Pu lic !e ates $any well:1nown business economists participate in public debates. Their advice and views are being sought by the government and society ali1e. Their practical e2perience in business and industry ads stature to their views. Their public recognition enhances their stature in the organi0ation itself. Indian Conte4t In the Indian conte2t, a managerial economist is e2pected to perform the following functions%: 6. $acro:forecasting for demand and supply. A. )roduction planning at macro and micro levels. B. Capacity planning and product:mi2 determination. C. Economics of various productions lines. 8. Economic feasibility of new production linesEprocesses and pro3ects.

D.

ssistance in preparation of overall development plans.

G. )reparation of periodical economic reports bearing on various matters such as the company"s product:lines, future growth opportunities, mar1et pricing situation, general business, and various nationalEinternational factors affecting industry and business. H. )reparing briefs, speeches, articles and papers for top management for various Chambers, Committees, Seminars, Conferences, etc. 7. -eeping management informed o various national and international developments on economicEindustrial matters. ,ith the adoption of the Few Economic )olicy, in 6776, the macro:economic Environment in India is changing fast at a pace that has been rarely witnessed before. nd these changes have tremendous implications for business. The managerial economist has to play a much more significant role. ;e has to constantly gauge the possibilities of translating the rapidly changing economic scenario into viable business opportunities. s India marches towards globali0ation, he will have to interpret the global economic events and find out how his firm can avail itself of the carious e2port opportunities or of establishing plants abroad either wholly owned or in association with local partners.