Role of a Managerial Economist

One of the principal objectives of any management in its decision making

process is to determine the key factors which will influence the business over the
period ahead. These factors can be divided into two categories: (i) external and (ii)
internal. These external factors lie outside the control of management because they
are external to the firm and are said to constitute business environment. The internal
factors lie within the scope and operations of a firm and hence within the control of
management, and they are known as business operations.

A business firm is free to take decisions about what to invest, where to invest,
how much to invest, how much labour to employ and what to pay for it, how to price
the products, and so on. But all these decisions are taken within the framework of a
particular business environment, and the firm’s degree of freedom depends on such
factors as the government’s economic policy, the actions of its competitors and the
like.
Business Operations:
A managerial economist can also be helpful to the management in making
decisions relating to the internal operations of a firm in respect of such problems as
price, rate of operations, investment, expansion or contraction. Certain relevant
questions in this context would be:
1. What will be a reasonable sales and profit budget for the next year?
2. What will be the most appropriate production schedules and inventory policies for
the next six months?
3. What changes in wage and price policies should be made now?
4. How much cash will be available next month and how should it be invested?
Specific Functions:
1. Sales Forecasting
2. Industrial Market Research
3. Economic Analysis of competing companies
4. Pricing problems of industry
5. Capital Projects
6. Production Programmes
7. Security/Investment analysis and forecasts
 8. Advice on primary commodities
9. Advice on trade and public relations
10. Economic Analysis of Agriculture
11. Analysis of underdeveloped economies
12. Environmental forecasting

The managerial economist has to gather economic data, analyse 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 make a continuous assessment of the impact of changing
technology. He may have to evaluate the capital budget in the light of short and long-
range financial, profit and market potentialities.
Important types of business decisions:
1. Production Decision:
Production is an economic activity which supplies goods and services for sale
in a market to satisfy consumer wants; thereby profit maximisation is made
possible. They may face problems relating to best combination of factors to gain
maximum profit or how to use different machine hours for maximum production
advantage etc.
2. Inventory Decision:
Inventory refers to the quantity of goods, raw material or other resources that
are idle at any point of time held by the firm. The decision to hold inventories to
meet demand is quite important for a firm and in certain situation the level of
inventories serves as a guide to plan production.
3. Cost Decision:
The competitive ability of the firm depends upon the ability to produce the
commodity at minimum cost. Hence cost structure, reduction of cost and cost
control has come to occupy important places in business decisions. Cost
information about the resources is very essential for business decision making.
4. Marketing Decision:
The important decisions are the target market, market positioning, and product
development, pricing channels of distribution, communication and promotion. A
business should take two inter related decisions in marketing: sales decision and
purchase decision