Diff between economics vs managerial economics Essay

1 The traditional Economics has both micro and macro aspects whereas Managerial Economics is essentially micro in character. 2. Economics is both positive and normative science but the Managerial Economics is essentially normative in nature. 3. Economics deals mainly with the theoretical aspect only whereas Managerial Economics deals with the practical aspect. 4. Managerial Economics studies the activities of an individual firm or unit. Its analysis of problems is micro in nature, whereas Economics analyzes problems both from micro and macro point of views. 5. Economics studies human behaviour on the basis of certain assumptions but these assumptions sometimes do not hold good in Managerial Economics as it concerns mainly with practical problems. 6. Under Economics we study only the economic aspect of the problems but under Managerial Economics we have to study both the economic and non-economic aspects of the problems. 7. Economics studies principles underlying rent, wages, interest and profits but in Managerial Economics we study mainly the principles of profit only. 8. Sound decision-making in Managerial Economics is considered to be the most important task for the improvement of efficiency of the business firm; but in Economics it is not so. 9. The scope of Managerial Economics is limited and not so wide as that of Economics Diff btw Economic of scope and scale Economies of Scale This is the cost advantage that a business obtains due to expansion. That is the factor that cause the average cost of producing a product to fall, as output of the product rises as explained in the ‘Dictionary of Economics’. By achieving economies of scale, a company would have the cost advantage over its existing and new rivals. Further, the company could achieve lower long run average cost (i.e. productive efficiency). But if technology changes, this might alter the nature of costs in the long run, where it could allow small businesses to adapt new technology successfully and break  into the established market segments. Have you ever wondered why the price of a digital camera keeps falling, while the functions and performance are high? This is Economies of Scale, which brings down the unit cost of production and hence, passes this advantage onto the consumer through lower prices. E.g. for a supermarket getting 5,000 cartons of milk as opposed to just 100, is cheaper. That is, the marginal cost of delivering 5,000 cartons will be low compared to that of getting 100. Economies of Scope These are factors that make it cheaper to produce a range of related products than to produce each of the individual products on their own (Dictionary of Economics). When a company produces a wide range of products as opposed to specializing in one or few handful of products economies of scope occurs. For example, a company could expand its product range in order to take advantage of the value of its existing brands – this would exploit economies of scope. In industries, such as telecommunications, healthcare industry etc, the economies of scope has been realized. E.g. when fast food outlets product multiple food items, they enjoy a lower average cost compared to that of firms producing the same food. Because the common factors such as storage, service facilities, etc can be shared among the different food items and hence, reducing the average cost. 5 Major Differences between Returns to Scale and Returns to a factor Returns to a factor: 1. Only one factor varies while all the rest are fixed. 2. The factor-proportion varies as more and more of the units of the variable factor are employed to increase output. 3. Returns to a factor or to variable proportions end up in negative returns. 4. It is a short-run phenomenon. 5. Returns to variable proportions are caused by indivisibility of certain fixed factors, specialisation of certain variable factors, or sub-optimal factor proportions. Returns to scale: 1. All or at least two factors vary. 2. Factor proportion called scale does not vary. Factors are increased in same proportion to increase output. 3. It is a long-run phenomenon. 4. Returns to scale end up in decreasing returns. 5. Returns to scale can be attributed to economies and diseconomies of scale caused by technical and/or managerial indivisibilities, exhaustibility of natural and managerial resources, or depreciability of certain factors. DISADVANTAGE OF MONOPOLY Poor level of service. No consumer sovereignty. Consumers may be charged high prices for low quality of goods and services. Lack of competition may lead to low quality and out dated goods and services. L ESS CHOICE OF CONSUMER HIGH PRICE LEAD TO LOWER CONSUMER SURPLUS