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Conclusion: The various aspects outlined above represent the major uncertainties
which a business firm has to reckon with, viz., demand uncertainty, cost uncertainty,
price uncertainty, profit uncertainty, and capital uncertainty. We can, therefore, conclude
that the subject-matter of Managerial Economics consists of applying economic
principles and concepts towards adjusting with various uncertainties faced by a
business firm.
Definitions
Outcomes
The two branches can be differentiated on the basis of results produced by each. As mentioned,
microeconomics involves both firms and consumers, therefore it has a broader scope. The effects
of microeconomics are on an individual's behavior, which can be either producer or consumer,
but managerial economics narrows it down to businesses only. The outcomes produced by
managerial economics influence the decision-making of firms.
Positive economics explains facts in the exact manner in which they are, and what they will be. It
is objective in nature, while normative economics provides value judgment and expresses an
opinion on what it ought to be. Microeconomics consists of both since they are both a part of its
scope. Managerial economics, however, is normative because it provides judgment on the
outcomes of a firm. It analyzes the future position of a firm so it does not contain any factual
content. The effects of a firm's decisions are discussed, explaining what a firm should do to
achieve its objectives.
Macroeconomics
Macroeconomics deals with economy as a whole, combining all the units. Microeconomics is the
study of an individual's behavior that does not have a grain of macroeconomics. On the other
hand, managerial economics applies microeconomics in a significant way and considers
macroeconomic theories as well while analyzing results. Therefore, it is a combination of both
microeconomics and macroeconomics; for instance, it applies demand, supply or cost through
microeconomics and also takes into account national income or inflation under macroeconomics
11 different types of pricing
1) Premium pricing
2) Penetration pricing
3) Economy pricing
This type of pricing takes a very low cost approach. Just the bare minimum to
keep prices low and attract a specific segment of the market that is highly
price sensitive. Examples of companies focusing on this type of pricing
include Walmart, Lidl and Aldi.
4) Skimming price
After being copied, the product loses its premium value and hence the price
has to be dropped immediately. Thus, to get maximum margins from their
products, innovative companies keep launching new variants so that
customers are always in the discovery phase and paying the required
premium.
5) Psychological pricing
It is a type of pricing which can be translated into a small incentive that can
make a huge impact psychologically on customers. Customers are more
willing to buy the necessary products at $4,99 than products costing $5. The
difference in price is actually completely irrelevant. However, it makes a great
difference in the mind of the customers. This strategy can frequently be seen
in the supermarkets and small shops.
6) Neutral strategy
This type of pricing focuses on keeping the price at the same level for all four
periods of the product lifecycl. However, with this type of strategy, there is
no opportunity to make higher profits and at the same time, it doesn’t allow for
increasing the market share. Also, when the product declines in turnover,
keeping the same price effects the margins thereby causing an early demise.
This pricing is used very rarely.
9) Bundling price
Ever hear of the offer of 1 + 1 free? In the supermarket, when two different
products are combined together such as a razor and the lotion for shaving,
and they are offered as a deal, then we get to experience the bundling type of
pricing first hand. This strategy is mainly used to get rid of excess stocks.
It is just like Bundling price. But here, the products are bundled so as to make
the customer use the bundled product for the first time. This type of pricing
focuses on buying one, and getting a new type of product for free.
Promotional pricing can also serve as a way to move old stock as well as to
increase brand awareness.
Depending on the goals and objectives of your company, and the strategies
decided by your company, you can use any of the 11 types of pricing
mentioned above. One can identify what strategy should be applied by
analyzing the market and also the product/service lifecycle they are present
in.