What is the managerial economy?
Managerial economy is a form of an economy that focuses on the application of economic analysis and statistics for business or management. It is usually a combination of traditional economic theory and practical economy that appears every day in the business environment. The managerial economy provides users with quantitative analysis of business situations using mathematical formulas and other calculations, including risk analysis, production analysis, price analysis and capital budget. Most businesses use a form of managerial economies in their business operations. Companies
often include a risk in the management process to determine what could happen if a significant shift in the economy or competing companies began to sell similar goods and services to consumers. Risk analysis is the business function of evaluation of the amount of risk in business decisions and the overall economic environment. Common models of economic risks including tree decision -making, Nash theory orModel of capital assets (CAPM) prices.
production analysis is the function of a managerial economy that focuses on the company's internal production processes. Managers check internal manufacturing processes to determine how effective the company uses economic resources or inputs to produce goods and services sold to consumers. This economic function may include the use of accounting of proceedings that develop methods of assigning costs that apply the commercial costs of individual goods or services. Finding ways to increase production efficiency can help companies achieve the economy of scope, an economic theory that companies that maximize their production processes can reduce total business costs.
Price analysis is a classic economic tool based on the economic theory of supply curves and demand. Conditions of the theory of basic supply and demands consumers will buy more goods for cheapMore prices and less goods at more expensive prices. Companies that supply too many goods at low prices may not earn sufficient profit, while offering goods at higher prices can limit the company's share. The managerial economy uses price analysis to find an equilibrium point where the company maximizes its profits through a specific amount of sale to consumers.
Capital budgeting is the investment processes that companies use to purchase main business assets to produce goods or services for consumers. Companies can use a company financial feature found in the managerial economy to determine how much debt the company should use when purchasing the main assets. The use of a combination of bank debt or equity and private investment financing can help companies maximize their capital resources in carrying out capital investments or budget decisions.