Question

** (a) (i) What is Managerial Economics?

(ii) What is the scope of Managerial Economics?

(iii) As a CEO of a company, of what relevance is Managerial Economics to you?

(b) Define and give an example of each of the following demand terms and concepts and illustrate diagrammatically a change in each.

(i) Demand

(ii) Normal good

(iii) Inferior good

(iv) Substitute good

(v) Complementary good

(c) The market demand for brand X has been estimated as Qx= 1,500 – 3Px – 0.05I- 2.5Py + 7.5Pz, where Px is the price of the brand X, I is per-capita income, Py is the price of brand Y, and Pz is the price of brand Z. Assume that Px = $2, I = $20,000, Py = $4, and Pz =$4

(i) With respect to changes in per-capita income, what kind of good is brand X?

(ii) How are brands X and Y related?

(iii) How are brands X and Z related?

(iv) How are brands Z and Y related?

(v) What is the market demand for brand X?

Answer 1

(a -1)  The integration of economic theory and methodology with the business practice is generally refers to Managerial economics. In general economic provides the tools and managerial economics applies these tools to the betterment of management of business. In other words we can say managerial economic means the application of economic theory to the problem of management. Managerial economics may be viewed as economics applied to problem solving at the level of the firm. It helps and enables the business executives to assume and analyze things. Every firm tries to get satisfactory profit even though economics emphasizes maximizing of profit. Hence, it becomes neces­sary to redesign economic ideas to the practical world. This function is being done by managerial economics.

(a-2) The main major scope of managerial economics for any business are demand analysis and forecasting, Cost and Production Analysis, Pricing Decisions, Policies and Practices, Profit Management, Capital Management.

(a-3)