Managerial economics is also
closely related to accounting, which is concerned with recording the financial
operations of a business firm. In fact, a managerial economist depends chiefly
on the accounting information as an important source of data required for his
decision-making purpose. for instance, the profit and loss statement of a firm
shows how well the firm has done and whether the information it contains can be
used by managerial economist to throw significant light on the future course of
action that is whether the firm should improve its productivity or close down.
Therefore, accounting data require careful interpretation, reconstruction and
adjustments before they can be used safely and effectively.
It is in this
context that the link between management accounting and managerial economics
deserves special mention. The main task of management accounting is to provide
the sort of data, which managers need if they are to apply the ideas of
managerial economics to solve business problems correctly. The accounting data
should be provided in such a form that they fit easily into the concepts and
analysis of managerial economics.
Managerial Economics and
Operations Research
Operations research is a
subject field that emerged during the Second World War and the years
thereafter. A good deal of interdisciplinary research was done in the USA. as well as
other western countries to solve the complex operational problems of planning
and resource allocation in defence and basic industries. Several experts like
mathematicians, statisticians, engineers and others teamed up together and
developed models and analytical tools leading to the emergence of this
specialised subject. Much of the development of techniques and concepts, such
as linear programming, inventory models, game theory, etc., emerged from the
working of the operation researchers. Several problems of managerial economics
are solved by the operation research techniques. These highlight the
significant relationship between managerial economics and operations research.
The problems solved by operation research are as follows:
- Allocation problems: An allocation problem confronts with the issue that men, machines and other resources are scarce, related to the number sand size of the jobs that need to be completed. The examples are production programming and transportation problems.
- Competitive problems: competitive problems deal with situations where managerial decision-making is to be made in the face of competitive action. That is, one of the factors to be considered is: “What will competitors do if certain steps are taken?” Price reduction, for example, will not lead to increased market share if rivals follow suit.
- Waiting line problems : Waiting line problems arise when a firm wants to know how many machines it should install in order to ensure that the amount of ‘work-in-progress’ waiting to be machined is neither too small nor too large. Such situations arise when for example, a post office, or a bank wants to know how many cash desks or counter clerks it should employ in order to balance the business lost through long guesses against the cost of installing more equipment or hiring more labour.
- Inventory problems: Inventory problems deal with the principal question: “What is the optimum level of stocks of raw-materials, components or finished goods for the firm to hold?”
The above
discussion explains that the managerial economics is closely related to certain
subjects such as economics, statistics, mathematics and accounting. A trained
managerial economist combines concepts and methods from all these subjects by
bringing them together to solve business problems. In particular, operations research
and management accounting are getting very close to managerial economics.
