PRESENTATION ON

NATURE & SCOPE OF MANAGERIAL

ECONOMICS
SUBMITTED TO: MS. SHRUTI MISHRA

BY

GROUP 1:
 SAKSHI CHITRANSH
 RITIKA TIWARI
 KALYANI DIXIT
 SHIVANI SHARMA
 RANJANA

1
 PART-1
THE BASICS OF ECONOMICS

INTRODUCTION TO ECONOMICS

Economics is the study of, how people allocate the limited resources to produce
& consume goods, to satisfy their endless wants with the objectives of
maximising their gain.

 ADAM SMITH the FATHER OF ECONOMICS defined Economics as

the Science of wealth.
 Economics is also known as the “Queen of Social Sciences”.

It is the science of choice that arises from two basic conditions, that

 Human wants are unlimited &

 The resources to satisfy these wants are limited

The Two key ideas in economics:

 Scarcity of goods &

 Efficient use of resources

SCARCITY OF GOODS

The word scarce is closely associated with the word limited or economic as
opposed to unlimited or free. Scarcity is the central problem of every society.

 Concept lies at the problem of resource allocation and problem of a

business enterprise.
 The essence of any economic problem, micro or macro, is the scarcity of
resources.
2
  The managers who decide on behalf of the corporate unit or the national
economy always face the economic problem of Scarcity of good quality
of materials or skilled technicians.

A technical definition of “Scarcity”

 In economic terms it can be termed as “ Excess of Demand”

 Any time for anything if its demand exceeds its supply, that thing is said
to be scarce.
 Scarcity is a relative term: Demand in relation to its supply determines
the element of scarcity

EFFICIENCY OF RESOURCES

Economy makes best use of its limited resources. That brings the critical notion
of efficiency. Efficiency denotes most effective use of a society’s resources in
satisfying people’s wants and needs.

Example: For e.g. most of us want to lead an exciting life i.e. life full of
excitements, adventures etc. but unluckily we do not always have the resources
necessary to do everything we want to do. Therefore choices have to be made or
in the words of economists “individuals have to decide “how to allocate scarce
resources in the most effective ways”. For this a body of economic principles
and concepts has been developed to explain how people and also business react
in this situation. Economics provide optimum utilization of scarce resources to
achieve the desired result. It provides the basis for decision making.

The major four sectors of the economy are engaged in three economic activities
of production, consumption and exchange of goods and services. These sectors
are as follows:

HOUSEHOLDS: Households fulfill their needs and wants through purchase

of goods and services from the firms. They are owners and suppliers of
factors of production and in turn they receive income in the form of rent,
wages and interest.

FIRMS: Firms employ the input factors to produce various goods and
services and make payments to the households.

3
GOVERNMENT: The government purchases goods and services from firms
and also factors of production from households by making payments.

FOREIGN SECTOR: Households, firms and government of India purchase

goods and services (import) from abroad and make payments. On the other hand
all these sectors sell goods and services to various countries (export) and in turn
receive payments from abroad.

CIRCULAR FLOW OF ECONOMIC ACTIVITY

4
THE THREE PROBLEMS OF ECONOMIC ORGANIZATION:

Because of scarcity, all economic choices can be summarized in big questions

about the goods and services a society should produce. These questions are:
 What to produce?
 How to produce?
 For whom to produce?

WHAT TO PRODUCE?
The first question every society faces is what to produce. Should a society build
more roads or schools? Because of scarcity, society cannot build everything it
wants. Choices have to be made. Once a society determines what to produce it
then needs to decide how much should be produced. In a market economy the
"what" question is answered in large part by the demand of consumers?

HOW TO PRODUCE?
The next question a society needs to decide after what to produce is how to
produce the desired goods and services. Each society must combine available
technology with scarce resources to produce desired goods and services. The
education and skill levels of the citizens of a society will determine what
methods can be used to produce goods and services. For example, does a nation
possess the technology and skills to pick grapes with a mechanized harvester, or
does it have to pick the grapes by hand?

FOR WHOM TO PRODUCE?

The final question each society needs to ask is for whom to produce. Who is to
receive and consume the goods and services produced? Some workers have
higher incomes than others. This means more goods and services in a society
will be consumed by these wealthy individuals, and less by the poor. Different
groups will benefit from the different ways that we choose to spend our money.

NATURE OF ECONOMICS

SCIENCE ART

POSITIVE NORMATIVE

5
ECONOMICS AS A SCIENCE

 Economics is the systematic study of knowledge & facts: All the facts &
theories related to micro &, macro economics are systematically collected
, classified & analysed.

 Economics deals with the correlation ship between cause & effect: For
ex. Supply is a positive function of price i.e. changes in price is a cause &
change in supply is the effect.

 All the laws in economics are universally accepted: Like Law of demand
, Law of supply .

 Theories & laws of economics are based on experiments : Like mixed

economy is an experimental outcome between capitalist & socialist
economy.

 Economics has a scale of measurement: Acc. To Prof. Marshall ‘money’

is used as the measuring rod in Economics.

ECONOMICS AS A POSITIVE SCIENCE

 The scientific aspect of economics is strictly positive.

 It answers the question “what is reality like?” or “what it is?”. Positive

science does not indicate what is good or what is bad to society.

 Positive Economics deals with, how the economic problem is solved, &
not how it should be solved.

IT IS A POSITIVE SCIENCE BECAUSE:

 LOGICALLY BASED: Economic ideas are based on absolute logical
clarifications & develops relationship between cause & effect

 LABOUR SPECIALISATION: Based on specialisation of labour ,

economists must concern with the causes & effect of labour division.

6
  NOT NEUTRAL : Is not neutral between positive & normative
economics.

ECONOMICS AS A NORMATIVE SCIENCE

It provides prescription or statements about “what should be?” or “what ought
to be?”

 It is concerned with the policy; is used to evaluate policies & outcomes in

terms of specific goals.

 It makes distinction between good & bad & what should be done to
promote human welfare.

ECONOMICS IS A NORMATIVE SCIENCE BECAUSE :

 EMOTIONAL VIEW : A rational human being has not only logical
view but also has sentimental attachments , regarding an activity & these
emotional attachments fall under the purview of normative economics.

 WELFARE ACTIVITY: Is a science of human welfare.

 ECONOMIC PLANNING: Is the main instrument of economic

development.

CONCLUSION
Economics is both, a positive as well as a normative science , because it does
not only tell why certain things happen but also gives an idea whether it is the
right thing to happen or not?

7
ECONOMICS AS AN ART

 Economics is an art because an art is a system of rules for the attainment

of given end. There are several branches of economics which provide
practical guidance in the solution of economic problem.

 Art turns the principles into reality.

CONCLUSION
 Economics is neither an exact science nor an art, but is a golden
combination of both.

 Economics is a Science in its methodology & an Art in its application.

Economics as a science gives us various laws & principles whereas as an Art , it

turns those principles into reality

ECONOMICS CAN BE STUDIED UNDER TWO HEADS/

SCOPE OF ECONOMICS :

ECONOMICS

MICRO MACRO

MICRO ECONOMICS:
It has been defined as that branch where the unit of study is an

8
Individual, firm or household. It studies how individual make their choices
about what to produce, how to produce, and for whom to produce, and what
price to charge. It is also known as the price theory and is the main source of
concepts and analytical tools for managerial decision making. Various micro-
economic concepts such as demand, supply, elasticity of demand and supply,
marginal cost, various market forms, etc. are of great significance to managerial
economics.

MICRO ECONOMICS

DEMAND & SUPPLY PRODUCTION PRICING

THEORY THEORY THEORY PROFIT INVENTORY
THEORY THEORY

1) DEMAND & SUPPLY THEORY

 Law of demand/supply .
 Determinants of demand/supply.
 Consumer’s requirements, tastes & preferences.
 How the change in income & the prices of products affect the purchase?
 Elasticity of demand.
 Cross elasticity.

2) PRODUCTION THEORY

Production theory is the study of production, or the economic process of

converting inputs into outputs. Production uses resources to create
a good or service that is suitable for use, gift-giving in a gift economy,
or exchange in a market economy. This can
include manufacturing, construction, storing, shipping, and packaging. Some
economists define production broadly as all economic activity other
than consumption. They see every commercial activity other than the final
purchase as some form of production.
 How to minimise the costs?
 Which method to opt? Labour or capital intensive?
 What quantity to produce & for whom?

9
3) PRICING THEORY

In ordinary usage, price is the quantity of payment or compensation given by

one party to another in return for goods or services.
In modern economies, prices are generally expressed in units of some form
of currency. (For commodities, they are expressed as currency per unit weight
of the commodity, e.g. euros per kilogram.) Although prices could be quoted as
quantities of other goods or services this sort of barter exchange is rarely seen.

4) PROFIT THEORY

The study of profits which are said to be the reward for enterprise, the fourth
factor of production. No doubt profits are associated with entrepreneur and his
functions but the economists from time to time have expressed diverse and
conflicting views about the nature, origin and role of profits. Till today, there is
no complete agreement among economists about the true nature and origin of
profits. As a matter of fact, there has been perhaps no topic in the whole
economic theory which has been in such a confused and tangled state as the
theory of profit. A part of the confusion in the theory of profit is due to the lack
of agreement among economists about the true or proper function of the
entrepreneur. Some have held the view that the function of the entrepreneur is to
organise and co-ordinate the other factors of production.

5) INVENTORY THEORY.

Inventory theory (or more formally the mathematical theory of inventory and
production) is the sub-specialty within operations research and operations
management that is concerned with the design of production/inventory systems
to minimize costs: it studies the decisions faced by firms and the military in
connection with manufacturing, warehousing, supply chains, spare
part allocation and so on and provides the mathematical foundation for logistics.
The inventory control problem is the problem faced by a firm that must decide

10
how much to order in each time period to meet demand for its products. The
problem can be modelled using mathematical techniques of optimal
control, dynamic programming and network optimization. The study of such
models is part of inventory theory.

MACRO ECONOMICS:
It’s not only individuals and forms that are faced with having to make choices.
Governments face many such problems. For e.g. How much to spend on health;
How much to spend on services; How much should go in to providing social
security benefits. This is the same type of problem faced by all of us in our daily
lives but in different scales. It studies the economics as a whole. It is
aggregative in character and takes the entire economy as a unit of study. Macro
economics helps in the area of forecasting. It includes National Income,
aggregate consumption, investments, employment etc.

SCOPE OF MACRO ECONOMICS

NATIONAL INCOME EMPLOYEMENT MONEY GENERAL PRICE LEVEL ECONOMIC

GROWTH

.
1) THEORY OF NATIONAL INCOME
The study of macroeconomics is very important for evaluating the overall
performance of the economy in terms of national income. With the advent
of the Great Depression of the 1930s, it became necessary to analyse the
causes of general overproduction and general unemployment. This led to
the construction of the data on national income. National income data help
in forecasting the level of economic activity and to understand the
distribution of income among different groups of people in the economy.

11
2) EMPLOYMENT

The Keynesian theory of employment is an exercise in macroeconomics.

The general level of employment in an economy depends upon effective
demand which in turn depends on aggregate demand and aggregate supply
functions. Unemployment is thus caused by deficiency of effective demand.
In order to eliminate it, effective demand should be raised by increasing
total investment, total output, total income and total consumption. Thus,
macroeconomics has special significance in studying the causes, effects and
remedies of general unemployment.

3) MONEY

It is in terms of macroeconomics that monetary problems can be analysed

and understood properly. Frequent changes in the value of money, inflation
or deflation, affect the economy adversely. They can be counteracted by
adopting monetary, fiscal and direct control measures for the economy as a
whole.

4) GENERAL PRICE LEVEL

The general price level is a hypothetical daily measure of overall prices for
some set of goods and services (the consumer basket), in an economy
or monetary union during a given interval (generally one day), normalized
relative to some base set. Typically, the general price level is approximated
with a daily price index, normally the Daily CPI. The general price level
can change more than once per day during hyperinflation.

 Inflation.

 Deflation.

12
 5) ECONOMIC GROWTH

The economics of growth is also a study in macroeconomics. It is on the basis

of macroeconomics that the resources and capabilities of an economy are
evaluated. Plans for the overall increase in national income, output, and
employment are framed and implemented so as to raise the level of economic
development of the economy as a whole.

13
 PART-2
NATURE, SCOPE & SIGNIFICANCE OF
MANAGERIAL ECONOMICS

ORIGIN OF MANAGERIAL ECONOMICS

Like every other individual a manager of a business firm has to take decisions in
the face of scarcity and alternative uses of resources. In fact success of a
business firm largely depends upon the efficiency in utilization of limited
resources remaining in the disposal of the business firm.

 Thus managerial economics is evolved as an important tool kits which is

useful in the decision making for the manager.

 The development of managerial economics as a separate discipline has a

recent origin. Joel Dean’s book Managerial Economics published in 1951
is taken as the pioneer in this discipline.

 Due to wide recognition of the uses of economic theories in the decision

making of the business this subject is rich in literature in these days.

CONCEPT OF MANAGERIAL ECONOMICS

 Managerial economics is the discipline that deals with the application of
economic concepts, theories and methodologies to the practical problems
of businesses/firms in order to formulate rational managerial decisions for
solving those problems.

 It uses the tools and techniques of Economic analysis to solve managerial

problems or to achieve the firm’s desired objective. It is that branch of
economics, which serves as a link between abstract theories and

14
 managerial practices. It is based on economic analysis for identifying
problems, organizing information and evaluating alternatives.

 Managerial economics borrows theories from traditional economics i.e.

microeconomics where as it borrows tools from decision science i.e.
mathematics and statistics and it tries to find out optimum solution of
business problems.

Thus Spencer and Seligman defined Managerial economics as “The

integration of economic theory and business practice for the purpose of
facilitating decision-making and forward planning by management.”

According to McNair and Meriam, Managerial Economics consists of the use of

economic modes of thought to analyse business situations. We may define
Managerial Economics as the discipline which deals with the application of
economic theory to business management. Managerial Economics thus lies on
the borderline between economics and business management and serves a
bridge between the two disciplines.

DISTINCTION BETWEEN MANAGERIAL &

TRADITIONAL ECONOMICS
There are some differences between managerial economics and traditional
economic theory because managerial economics seeks the help of other
disciplines such as statistics, mathematics, accounting, management to get
optimal solution to the managerial decision-making problems.

Differences between managerial economics and traditional economics which are

outlined below:

 Managerial economics concerns with the application of economic

principles to the problems of the firm but the traditional economics deals
with the body of principles itself.

 Managerial economics is highly microeconomics in character. It studies

the problems of a firm but does not study the macroeconomic
phenomenon. But traditional economics consist of both micro and macro
economics.

15
 Managerial Economics, though micro in character, deals with the firm
and has nothing to do with an individual’s economic problems. But
Micro-Economics as a branch of Economics deals with both economics
of the individual as well as economics of the firm.

 Under Micro Economics as a branch of Economics, distribution theories,

viz., wages, interest and profit, are also dealt with but in Managerial
Economics , mainly Profit Theory is used: other distribution theories have
not much use in Managerial Economics. Thus, the scope of Economics is
wider than that of Managerial Economics.

 Economic theory hypothesizes economic relationships and builds

economic models but Managerial Economics adopts, modifies and
reformulates economic models to suit the specific conditions and serves
the specific problem solving process. Thus Economics gives the
simplified model, whereas Managerial Economics modifies and enlarges
it.

 Economic theory makes certain assumptions whereas Managerial

Economics introduces certain feedbacks such a objectives of the firm,
multi-product nature of manufacture, behavioural constraints,
environmental aspects, legal constraints, constraints on resource
availability, etc., thus embodying a combination of certain complexities
assumed away in economic theory and then attempts to solve the real-life,
complex business problems with the aid of tool subjects, e.g.,
mathematics, statistics, econometrics, accounting, operations research,
and so on.

FEATURES OF MANAGERIAL ECONOMICS

 Even if there are some differences among scholars on the subject of
features of managerial economics, here some of the commonly agreed
characteristics of managerial economics are introduced. They are:

 Microeconomics character: - Managerial economics is microeconomics

in character because its unit of study is firm. However, it always takes the
help of macroeconomics to understand and adjust to the environment in
which the firm operates.

16
  Choice and Allocation: - Managerial economics is concerned with
decision-making of economic nature. This implies that managerial
economics deals with identification of economic choices and allocation of
scarce resources on the best alternative.

 Goal Oriented: - Managerial economics is goal-oriented and

prescriptive. It deals with how decisions should be formulated by
managers to achieve the organizational goals.

SCOPE OF MANAGERIAL ECONOMICS

As regards the scope of Managerial Economics, no uniform pattern has been
followed by various authors. However, the following aspects may be said to
generally fall under Managerial Economics:

 Demand Analysis and Forecasting- A business firm is an economic

organism which transforms productive resources into goods that are to be
sold in a market. A major part of managerial decision-making depends on
accurate estimates of demand. Before production schedules can be
prepared resources employed, a forecast of future sales is essential. This
forecast can also serve a guide to management for maintaining or
strengthening market position and enlarging profits. Demand analysis
helps identify the various factors influencing the demand for a firm’s
product and thus provides guidelines to manipulating demand. Demand
Analysis and Forecasting, therefore, is essential for business planning and
occupies a strategic place in Managerial Economics. It mainly consists of
discovering the forces determining sales and their measurement. The
chief topics covered are: Demand Determinants, Demand Distinctions
and Demand Forecasting.

 Cost Analysis- uncertain and uncontrollable, A study of economic costs,

combined with the data drawn from the firm’s accounting records, can
yield significant cost estimates that are useful for management decisions.
The factors causing variations in costs must be recognized and allowed
for if management is to arrive at cost estimates which are significant for
planning purposes. An element of cost uncertainly exists because all the
factors determining costs are not always known or controllable.
17
 Discovering economic costs and being able to measure them are
necessary steps for more effective profit planning, cost control and often
for sound pricing practices. The chief topics covered under cost analysis
are: Cost Concepts and Classifications, Cost- Output Relationships,
Economies and Diseconomies of Scale, and Cost Control and Cost
Reduction.

 Production and Supply Analysis- deals with different production

functions and their managerial use – supply of commodities, Production
analysis is narrower in scope than cost analysis. Production analysis
frequently proceeds in physical terms while cost analysis proceeds in
monetary terms. Production analysis mainly deals with different
production functions and their managerial uses.

Supply analysis deals with various aspects of supply of a commodity.

Certain important aspects of supply analysis are: Supply schedule, Curves
and Functions, Law of supply and its limitations. Elasticity of supply and
Factors influencing supply.

 Pricing Decisions, Policies and Practices- price is the genesis of the

revenue of the firm, Pricing is a very important area of Managerial
Economies. In fact, price is the genesis of the revenue of a firm and as
such the success of a business firm largely depends on the correctness of
the price decisions taken by it. The important aspect dealt with under this
area are : Price determination in various Market Forms, Pricing methods,
Differential Pricing, Product-line-Pricing and Price Forecasting.

 Profit Management- profit is the chief measure of success, and Business

firms are generally organized for the purpose of making profit and, in the
long run, profits provide the chief measure of success. In this connection,
an important point worth considering is the element of uncertainty
existing about profits because of variations in the costs and revenues
which, in turn, are caused by the factors both internal and external to the
firm. If knowledge about the future were perfect, profit analysis would
have been a very easy task. However, in a world of uncertainty,
expectations are not always realized so that profit planning and
measurement constitute the difficult areas of Managerial Economies. The
important aspects covered under this area are: Nature and Measurement

18
 of Profit, Profit Policies and techniques of Profit Planning like Break-
Even Analysis.

 Capital Management- management-large sum of money is involved –

matter for top level decision. Of the various types and classes of business
problems, the most complex and troublesome for the business manager
are likely to be those relating to the firm’s capital investments. Relatively
large sums are involved, and the problems are so complex that their
disposal not only requires considerable time and labour but is a matter for
top-level decisions. Briefly, capital management implies planning and
control of capital expenditure. The main topics dealt with are: Cost of
Capital, Rate of Return and Selection of Projects.

• These aspects may also be called as the ‘Subject- matter of Management

Economies’.

• In recent years, there is trend towards integration of Managerial

Economies and Operation Research. Hence, techniques such as Linear
Programming, Inventory Models, Theory of Games, etc., have also come
to be regarded as part of Managerial Economies.

SIGNIFICANCE
How managerial economics is useful?

 Evaluating choice alternatives

– Identify ways to efficiently achieve goals.

– Specify pricing and production strategies.

– Provide production and marketing rules to help maximize net profits.

 Making the Best Decision

– Managerial economics can be used to efficiently meet management

objectives.

19
 – Managerial economics can be used to understand logic of company,
consumer, and government decisions.

CONCLUSION
To conclude, the usefulness of managerial economics lies in borrowing and
adopting the tool-kit from economic theory, incorporating relevant ideas from
other disciplines to achieve better business decisions, serving as a catalytic
agent in the course of decision-making by different functional
departments/specialists at the firm’s level and finally accomplishing a social
purpose through orienting business decisions towards social obligations.

20
 PART 3
ROLE AND RESPONSIBILITIES OF
MANAGERIAL ECONOMIST
ROLE OF MANAGERIAL ECONOMIST
A managerial economist can play a very important role by assisting the
management in using the increasingly specialised skills and sophisticated
techniques, required to solve the difficult problems of successful decision-
making and forward planning. In business concerns, the importance of the
managerial economist is therefore recognised a lot today. In advanced countries
like the USA, large companies employ one or more economists. In our country
too, big industrial houses have understood the need for managerial economists.
Such business firms like the Tatas, DCM and Hindustan Lever employ
economists. A managerial economist can contribute to decision-making in
business in specific terms. In this connection, two important questions need be
considered:

1. What role does he play in business, that is, what particular management
problems lend themselves to solution through economic analysis?
2. How can the managerial economist best serve management, that is, what
are the responsibilities of a successful managerial economist?

FACTORS OF MANAGERIAL ECONOMICS

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. In general, these factors can be divided into two categories:

 External
 Internal

INTERNAL FACTORS

1- Replacement decision
2- Make or buy decision
3- Shut down decision
4- Decision on export and import

21
 5- Location decision
6- Capital budgeting

The 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. To
illustrate, a business firm is free to take decisions about what to invest, where to
invest, how much labour to employ and what to pay for it, how to price its
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.

Environmental Studies of a Business Firm

An analysis and forecast of external factors constituting general business
conditions, for example, prices, national income and output, volume of trade,
etc., are of great significance since they affect every business firm. Certain
important relevant factors to be considered in this connection are as follows:

 The outlook for the national economy, the most important local, regional
or worldwide economic trends, the nature of phase of the business cycle
that lies immediately ahead.
 Population shifts and the resultant ups and downs in regional purchasing
power.
 The demand prospects in new as well as established markets. Impact of
changes in social behaviour and fashions, i.e., whether they will tend to
expand or limit the sales of a company’s products, or possibly make the
products obsolete?
 The areas in which the market and customer opportunities are likely to
expand or contract most rapidly.
 Whether overseas markets expand or contract and the affect of new
foreign government legislations on the operation of the overseas plants?
 Whether the availability and cost of credit tend to increase or decrease
buying, and whether money or credit conditions ahead are likely to easy
or tight?
 The prices of raw materials and finished products.
 Whether the competition will increase or decrease.
 The main components of the five-year plan, the areas where outlays have
been increased and the segments, which have suffered a cut in their
outlays.
 The outlook to government’s economic policies and regulations and
changes in defence expenditure, tax rates tariffs and import restrictions.

22
  Whether the Reserve Bank’s decisions will stimulate or depress industrial
production and consumer spending and how will these decisions affect
the company’s cost, credit, sales and profits.

Reasonably accurate data regarding these factors can enable the management
to chalk out the scope and direction of their own business plans effectively. It
will also help them to determine the timing of their specific actions. And it is
these factors, which present some of the areas where a managerial economist
can make effective contribution. The managerial economist has not only to
study the economic trends at the micro-level but also must interpret their
relevance to the particular industry or firm where he works. He has to digest the
ever-growing economic literature and advise top management by means of
short, business-like practical notes. In mixed economy like that of India, the
managerial economist pragmatically interprets the intentions of controls and
evaluates their impact. He acts as a bridge between the government and the
industry, translating the government’s intentions and transmitting the reactions
of the industry. In fact, the government policies emerge out of the performance
of industry, the expectations of the people and political expediency.

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 as follows:
· What will be a reasonable sales and profit budget for the next year?
· What will be the most appropriate production schedules and inventory
policies for the next six months?
· What changes in wage and price policies should be made now?
· How much cash will be available next month and how should it be invested?

Specific Functions
The managerial economists can play a further role, which can cover the
following specific functions as revealed by a survey pertaining to Brittain
conducted by K.J.W. Alexander and Alexander G. Kemp:

 Sales forecasting.
 Industrial market research.
 Economic analysis of competing companies.
 Pricing problems of industry.
 Capital projects.
 Production programmes.
 Security / Investment analysis and forecasts.
 Advice on trade and public relations.

23
  Advice on primary commodities.
 Advice on foreign exchange.
 Economic analysis of agriculture.
 Analysis of underdeveloped economics.
 Environmental forecasting.

The managerial economist has to gather economic data, analyse all relevant
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
theological advances, the manager may have to make continuous assessment of
tl1e impact of changing technology. The manager' may need to evaluate the
capital budget in the light of short and long-range financial, profit and market
potentialities. Very often, he also needs to prepare speeches for the corporate
executives. It is thus clear that in practice, managerial economists perform many
and various functions. However, of all these, the marketing functions, i.e., sales
force listing an industrial market research, are the most important.
For this purpose, the managers may collect statistical records of the sales
performance of their own business and those rehiring to their rivals, carry out
analysis of these records and report on trends in demand, their market shares,
and the relative efficiency of their retail outlets. Thus, while carrying out heir
functions, the managers may have to undertake detailed statistical analysis.
There are, of course, differences in the relative importance of· the various
functions performed from firm to firm and in the degree of sophistication of the
methods used in performing these functions. But there is no doubt that the job
of a managerial economist requires alertness and the ability to work under
pressure.

Economic Intelligence
Besides these functions involving sophisticated analysis, managerial economist
may also provide general intelligence service. Thus the economist may supply
the management with economic information of general interest such as
competitors, prices and products, tax rates, tariff rates, etc.

Participating in Public Debates

Many well-known business economists participate in public debates. The
government and society alike are seeking their advice and views. Their practical
experience in business and industry adds prestige to their views. Their public
recognition enhances their protégé in the .firm itself.

24
 Indian Context
In the Indian context, a managerial economist is expected to perform the
following functions:
 Macro-forecasting for demand and supply.
 Production planning at macro and micro levels.
 Capacity planning and product-mix determination.
 Economics of various production lines.
 Economic feasibility of new production lines / processes and projects.
 Assistance in preparation of overall development plans.
 Preparation of periodical economic reports bearing on various matters
such as the company's product-lines, future growth opportunities, market
pricing situation, general business, and various national/international
factors affecting industry and business.
 Preparing briefs; speeches, articles and papers for top management for
various chambers, Committees, Seminars, Conferences, etc
 Keeping management informed of various national and International
Developments on economic/industrial matters.

With the adoption of the new economic policy, the macro-economic

environment is changing fast and these changes have tremendous implications
for business. The managerial economists have to plays much more significant
role. They have to constantly measure the possibilities of translating the rapidly
changing economic scenario into workable business opportunities. As India
marches towards globalisation, the managerial economists will have to interpret
the global economic events and find out how the firm can avail itself of the
various export opportunities or of establishing plants abroad either wholly
owned or in association with local partners.

Responsibilities of a Managerial Economist

Besides considering the opportunities that lie before a managerial economist it
is necessary to take into account the services that are expected by the
management. For this, it is necessary for a managerial economist to thoroughly
recognise the responsibilities and obligations. A managerial economist can
serve the management best by recognising that the main objective of the
business, is to make a profit on its invested capital. Academic training and the
critical comments from people outside the business may lead a managerial
economist to adopt an apologetic or defensive attitude towards profits. There
should be a strong personal conviction on part of the managerial economist that
25
profits are essential and it is necessary to help enhance the ability of the firm to
make profits. Otherwise it is difficult to succeed in serving management.
Most management decisions necessarily concern the future, which is rather
uncertain. It is, therefore, absolutely essential that a managerial economist
recognises his responsibility to make successful forecast. By making the best
possible forecasts and through constant efforts to improve, a managerial' ng, the
risks involved in uncertainties. This enables the management to· follow a more
orderly course of business planning. At times, it is required for the managerial
economist to reassure the management that an important trend will continue. In
other cases, it is necessary to point out the probabilities of a turning point in
some activity of importance to management. In any case, managerial economist
must be willing to make fairly positive statements about impending economic
developments. These can be based upon the best possible information and
analysis. The management's confidence in a managerial economist increases
more quickly and thoroughly with
a record of successful forecasts, well documented in advance and modestly
evaluated when the actual results become available.
A few consequences to the above proposition need also be emphasised here.
 First, a managerial economist has a major responsibility to alert
managelI1ent at the earliest possible moment in' case there is an err6r'
in his forecast. This will assist the management in making appropriate
adjustment in policies and programmes and strengthen his own
position as a member of the management team by keep right fingers
on the economic pulse of the business.
 Secondly, a managerial economist must establish and maintain
many contacts with individuals and data sources: which would not be
immediately available to the other members of the management.
Extensive familiarity with reference sources and material is essential.
It is still more important that the known individuals who are
specialists in particular fields have a bearing on tpe managerial
economist's work. For this purpose, it is required that managerial
economist joins professional associations and tak~ active part in
them. In fact, one of the best means of determining the quality of a
managerial economist is to evaluate his ability to obtain information
quickly by personal contacts rather than by lengthy research from
either readily available or obscure reference sources. Within any
business, there' may be a wealth of knowledge and experience but the
managerial economist would be really useful ifit is possible pn his
part to supplement the existing know-how with additional
information and in the quickest possible manner.
Again, if a managerial economist is to be really helpful to the management
in successful decision-making and forward planning, it is necessary'" to able to
earn full status on the business team. Readiness to take up special assignments,

26
be that in study teams, committees or special projects is another important
requirement. This is because it is necessary for the managerial economist to win
continuing support for himself and his professional ideas. Clarity of expression
and attempting to minimise the use of technical terminology while
communicating his ideas to management executives is also an essential role so
as to win approval.
To conclude, a managerial economist has a very important role to play by
helping management in successful decision-making and forward planning. But
to discharge his role successfully, it is necessary to recognise the 'relevant
responsibilities and obligations. To some business executives, however, a
managerial economist is still a luxury or perhaps even a necessary evil. It is not
surprising, therefore, to find that while their status is improving and their
importance is gradually rising, managerial economists in certain firms still 'feel
quite insecure. Nevertheless, there is a definite and growing realisation that they
can contribute significantly to the profitable growth of firms and effective
solution of the problems, and this' promises them a positive future.

27