1. 2. Define business economics with its scope.
Business economics is applied microeconomics. It bridge up the gap
between pure economic theory and business practices. It is fusion of
economics, mathematics, logical science and decision science, which helps
to take optimal and rational business decisions. It integrates economic
theories with business practice. It is science of decision-making.
Scope of business economics is narrower than that of pure economics.
Pure economics includes both macroeconomics and microeconomics, but
business economics is a branch of microeconomics.
There is controversy among the economists regarding the scope or the
study area of business economics. However, business economics generally
covers following aspects. They are as follows:
1. Demand Analysis & Forecasting:
Demand analysis is useful to identify the various factors tat influence the
demand for a firm's product. It provides guidelines to manipulating the
demand. Similarly, the major part of business decision-making depends on
accurate estimate of the demand.
Forecasting is an important topic studied in Business Economics. Every
business firm initiates and continues its production process based on the
anticipation of more demand for its goods in the future. It makes research
and conducts market survey with a view to know the tastes and fashions of
the consumers. It pools up the resources and starts production for meeting
the future demand. Business Economics analyses the demand behavior
and forecasts the quantity demanded by the consumers.
2. Cost Analysis:
Business Economics deals with the analysis of different costs incurred by
the business firms. Every firm desires to minimize its costs and increase its
output by securing several economies of scale. However, it does not know
in advance about the exact costs involved in production process.
Business Economics deals with the cost estimates and provides knowledge
to the entrepreneurs regarding cost analysis of their firm.
3. Profit Analysis:
Every business firm aims to secure maximum profits. However, at the same
time it faces uncertainty and risk in getting profits. It has to make
innovations in production and marketing of its goods. Business Economics
deals with the matters relating to profit analysis like profit techniques,
policies and break-even analysis.
4. Capital Management:
Capital management is another topic dealt in Business Economics. It

2. denotes planning and control of capital expenditure in business
organization. It studies matters like cost of capital, rate of return,
evaluation and selection of best project etc.
5. Production Analysis:
The factors of production are scarce and have alternative uses. Producer
combines these factors in a particular way in the process of production to
yield maximum output. Hence, production analysis is one of the important
aspects of business economics. It studies about production function, factor
productivity, least cost combination of inputs etc.
6. Price Determination & Its Methods:
A major objective of a firm is to maximize profit, which is largely depends
upon the appropriate pricing decisions. Different methods of price
determination under different types of market structures are studied under
the Business Economics. The major topics related with price determination
and methods are price determination under different market structures,
pricing objectives, pricing methods, price discrimination, pricing of joint
product etc.
7. Objectives of the Firm:
Every firm has an objective. A firm should fix its objectives at the begging
of the business. Because, the objectives of a firm provides guideline to the
producer while making decisions regarding its price and output. The
objective may be many such as profit maximization, sales maximization,
utility maximization, satisfaction maximization etc. However, a firm may
have one objectives at a time. The theories regarding objectives of a firm
propounded by different economists are studied under business
economics.
8. Business Environment:
The business environment has significant influence on business firms. The
business economics studies about different types of business environment
such as the phase of business cycle, situation of money and capital
market, market structure and etc.
Hence, study of business environment also one of the major aspect or
study area of the business economics.
In recent years, there is a trend towards integration of business economics
and operational research. Where, techniques such as linear programming,
inventory models, theory of games and etc. are also regarded as a part of
the business economics)

3. What do you mean by business economics? Explain its relation with
traditional economics.
Answer:
Business (managerial) economics has been a separate science since
1951. The credit of introduction of business economics goes to the
American Economists Joel Dean. He introduced Business Economics
through his book named "Managerial Economics" published in 1951. Since
then the broad study of business economics has been started. At present
economists, treat it as a young and growing science. At present time,
business economics has been one of the most popular subjects for the
students and business world.
Business (Managerial) economics is taken as an applied economics.
Theories of managerial economics are related to the study of economic
activities of a firm. It provides knowledge of how a firm uses traditional
economic theories into practice. In other word, Business (Managerial)
Economics is taken as a science, which reduces the gap between abstract
economic theory and business practice.
Business Economics has close relationship with traditional economics.
Business economics is a special branch of traditional economics used in
business decision-making process. Business economics provides a link
between economic theory and decision science in analysis of business
decision-making process. The relationship of business economics with
traditional economics is like that of engineering with physics and medicine
with biology and bacterial science. Relationship between tradition
economics and business economics is explained as follows:
1. Traditional economics studies economic theories, concepts, and models
in a theoretical approach whereas business economics studies these
concepts from practical basis.
2. Traditional economics include micro and macroeconomics whereas
business economics is fundamentally microeconomic in nature.
3. Traditional economics can be studied as both positive and normative
science whereas business economics is a normative science.
4. Traditional economics studies individual units of an economy as well as
macroeconomics whereas business economics deals only with the
economic activities of the firm.
5. Traditional economics deals with economic factors whereas business
economics studies both economic and non-economic factors.
6. Traditional economics studies human behavior based on certain
assumptions whereas these assumptions may not be true under the
study of business economics.
7. The scope of traditional economics is broad whereas the scope of
business economics is narrow because it is only a branch of traditional
economics.