ROLE OF MANAGERIAL ECO

ROLE OF MANAGERIAL ECO

The role of managerial economist can be summarized as follows:

1. He studies the economic patterns at macro-level and analysis it’s significance to the specific firm he is working in.

2. He has to consistently examine the probabilities of transforming an ever-changing economic environment into profitable business avenues.

3. He assists the business planning process of a firm.

4. He also carries cost-benefit analysis.

5. He assists the management in the decisions pertaining to internal functioning of a firm such as changes in price, investment plans, type of goods /services to be produced, inputs to be used, techniques of production to be employed, expansion/ contraction of firm, allocation of capital, location of new plants, quantity of output to be produced, replacement of plant equipment, sales forecasting, inventory forecasting, etc.

6. In addition, a managerial economist has to analyze changes in macro- economic indicators such as national income, population, business cycles, and their possible effect on the firm’s functioning.

7. He is also involved in advicing the management on public relations, foreign exchange, and trade. He guides the firm on the likely impact of changes in monetary and fiscal policy on the firm’s functioning.

8. He also makes an economic analysis of the firms in competition. He has to collect economic data and examine all crucial information about the environment in which the firm operates.

9. The most significant function of a managerial economist is to conduct a detailed research on industrial market.

10. In order to perform all these roles, a managerial economist has to conduct an elaborate statistical analysis.

11. He must be vigilant and must have ability to cope up with the pressures.

12. He also provides management with economic information such as tax rates, competitor’s price and product, etc. They give their valuable advice to government authorities as well.

13. At times, a managerial economist has to prepare speeches for top management.

Summarize the various theories of profit.

1. Dynamic Theory of Profit

The dynamic theory of profit was given by J.B. Clark. According to him profit accrues because the society is dynamic by nature. Since the dynamic nature of society makes future uncertain and any act, the result of which has to come in future, involves risk. Thus profit is the price of risk taking and risk bearing. It arises only in a dynamic society which means in a society where changes does not occur i.e. it is static by nature the risk element disappears and hence the profit element does not exist there.

Actually, a society is said to be dynamic when there is a change in its population, change in trends of the people, change in stock of the capital, change in the supply of entrepreneurs etc. when all these factors becomes constant, the future also becomes certain and the risk element disappears from the society.

According to Clark, profit is the result of an adjustment, which is brought about by the entrepreneurs themselves. They may find new techniques of production by inventing new machines. Their use reduces the cost of production and reduces the course of time as well and gives the entrepreneur higher profits. But when the use of machinery and production becomes common and used by the other entrepreneur operating in the economy. The supply of goods then increase and the prices fall. Hence the profit margin also goes down. Under this situation the profit is determined by the demand and supply of enterprise at a point where they are equal.

Criticism

This theory completely ignores the future or uncertainty. According to Prof. Knight only those changes, which cannot be foreseen, and which cannot be provided in advance will yield profits and not others. Also this theory often gives a misleading conclusion regarding the competition