Scope of Business Economics
The field of business economics focuses on issues such as business organization, management, expansion, and strategy. Among the topics studied are how and why corporations expand, the impact of entrepreneurs, and the interaction between corporations and governments.Our daily economic lives and business practices are impacted by Business Economics. On a daily basis, organizations face many challenges.
For instance, organizations are always concerned with maximizing output at the lowest cost. The management of such problems requires the application of various economic theories and concepts. Business economics involves the use of economic theories, concepts, and tools in business decision making.
There is no uniformity of opinion among various authors regarding the scope of business economics. Some of the major scope of Business Economics are as follows:
1) Demand Analysis and Forecasting :
In economics, a business firm converts productive resources into products for sale. Estimating demand accurately plays a major role in business decision-making. Management can use demand forecasts to strengthen and maintain market positions and increase profits. Analysis of demand provides guidelines for manipulating demand by identifying the factors that influence product demand.
It is essential to analyze and forecast demand for business planning and is an important part of managerial economics. It covers three main topics: Demand Determinants, Demand Distinctions, and Demand Forecasting.
2) Cost and Production Analysis :
Combining economic costs with accounting records can provide useful cost estimates for management decisions based on the firm’s accounting records. Due to the unknowability and controllability of all the factors that determine costs, there is an element of cost uncertainty. Profit planning, cost control, and sound pricing practices require an understanding of economic costs and the ability to measure them.
The scope of production analysis is narrower than that of cost analysis. The production analysis is often conducted in physical terms, while the cost analysis is conducted in monetary terms. Cost concepts and classification, cost function and cost control are the main topics covered under cost and production analysis.
3) Pricing Decisions, Policies and Practices :
In business economics, pricing plays an important role. In fact, price is the genesis of a firms revenue and as such its success largely depends on how correctly the pricing decisions are taken. The topics covered under pricing include: Determining Prices in Different Market Forms, Differential Pricing, Product-Line Pricing, and Price Forecasting.
4) Profit Management :
Profits earned by businesses are considered a key measure of the firm’s success, because firms are generally organized to make profits. The analysis of profit would have been very easy if knowledge about the future had been perfect. A world of uncertainty, however, makes profit planning and measurement challenging in business economics because expectations are not always met. Profit policies, break-even analysis, and nature and measurement of profit are the topics covered under this category.
5) Capital Management :
Business problems relating to capital investments are the most complex and troublesome for business managers. It involves a considerable sum of money and complex problems that require a great deal of work and time to solve. A top management decision is often made regarding capital management.
The essence of capital management is the planning and control of capital expenditures. Among the topics covered are: Cost of Capital, Rate of Return, and Project Selection.
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