Answer» - If a manager wants to increase the price of the product due to increase in cost of production, he will analyze the price elasticity of demand for that product so that price rise is not followed by substantial fall in the demand of the product. It is the application of demand analysis to the real world situation.
- For fixing the price of the products managers applies the pricing theories, cost and revenue theories of micro economics.
- Decisions regarding production and supply of the product in the market, knowledge of availability of fixed and variable factors of production, state of technology to be used and availability of raw-material are essential. This can be determined with the knowledge of theory of production.
- Determination of price and output is possible with the acquaintance of market structures and approaches pertinent for determination of price and output in the given market setup.
- Managerial economics utilizes statistical methods such as game theory, linear programming etc for application of Economic Theory in Decision making.
- One of the responsibilities of Manager is to workout budgets for different departments of the organization which is learned from Capital Budgeting and Capital Rationing.
- Cost and benefit analysis helps the manager in decision making.
- Study of welfare economics helps Manager in taking care of social responsibilities of the organization.
- Microeconomics is the study that deals with partial equilibrium analysis which is useful for the manager in deciding equilibrium for his organization.
- Managerial Economics also uses tools of Mathematical Economics and econometrics such as regression analysis, correlation analysis etc.
- Theory of firm, an important element of microeconomics, is one of the most significant element of Managerial Economics.
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