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Elaborate the Scope of Business Economics?

by Puja

Business Economics, also called Managerial Economics. Scope of business economics is the application of economic theory and methodology to business. Business involves decision-making. Decision making means the process of selecting one out of two or more alternative courses of action. The question of choice arises because the basic resources such as capital, land, labour and management are limited and can be employed in alternative uses. The decision-making function thus becomes one of making choice and taking decisions that will provide profit maximation.


According to Mc Nair and Meriam, “Business economic consists of the use of economic modes of thought to analyse business situations.”

According to Mansfield, “business economics is concerned with the application of economic concepts and economic analysis to the problem of formulating rational decision making”.

Scope of business economics

Demand Analysis and Forecasting :

A business firm is an economic organisation which transform productive resources into goods to sell in the market. A major part of business decision making depends on accurate estimates of demand. A demand forecast can serve as a guide to management for maintaining and strengthening market position and enlarging profits. Demands analysis helps identify the various factors influencing the product demand and thus provides guidelines for manipulating demand.

Cost and Production Analysis :

A study of economic costs, combined with the data drawn from the firm’s accounting records, can yield significant cost estimates which are useful for management decisions. An element of cost uncertainty exists because all the factors determining costs not known and controllable. Discovering economic costs and the ability to measure them are the necessary steps for more effective profit planning, cost control and sound pricing practices. Production analysis is narrower, in scope than cost analysis. Production analysis frequently proceeds in physical terms while cost analysis proceeds in monetary terms.

Pricing Decisions, Policies and Practices :

Pricing is an important area of business economic. In fact, price is the genesis of a firms revenue and as such its success largely depends on how correctly the pricing decisions taken. The important aspects dealt with under pricing include. Price Determination in Various Market Forms, Pricing Method, Differential Pricing, Product-line Pricing and Price Forecasting.

Profit Management :

Business firms generally organised for purpose of making profits and in the long run profits earned taken as an important measure of the firms success. If knowledge about the future were perfect, profit analysis would have been a very easy task. However, in a world of uncertainty, expectations not always realised so that profit planning and measurement constitute a difficult area of business economic.

Capital Management :

Among the various types business problems, the most complex and troublesome for the business manager are those relating to a firm’s capital investments. Relatively large sums are involved and the problems are so complex that their solution requires considerable time and labour.

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