Managerial Economics PDF

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managerial economics


The development of managerial economics is regulated by a close interconnection between two distinct disciplines: Economics and Management.

Managerial economics refers to a stream that combines economic theory and managerial decision-making.

It is the analysis of major managerial decisions by using the tools and techniques of economics to aid managers in making better decisions.

Managers are always confronted with numerous day-to-day decisions regarding production, quantity, quality, supply, profit, and so on.

In this regard, managerial economics equips the managers with a number of economic tools and techniques with the help of which the managers take various decisions in real market situations.

Thus, managerial economics can be stated as a body of knowledge that helps managers in preparing strategies for a business unit.

Few Definitions

According to Mansfield, “Managerial Economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.”

According to McNair and Meriam, “Managerial economics is the use of economic modes of thought to analyze business situations.”

Prof. Evan J Douglas defined

“Managerial Economics is concerned with the application of economic principles and methodologies to the decision-making process within the firm or organization under the conditions of uncertainty,”

M. H. Spencer and Louis Siegelman explain that “Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management”.

In Nutshell, we can summarise that managerial economics is the study of the efficient utilization of limited resources to achieve predetermined goals.

Broadly, managerial economics is categorized into two slots: Micro-Economics and Macro-Economics.

Microeconomics (micro means small + economics) analyses the behavior of firms and individuals in taking various decisions about distributing scarce resources to achieve their goals.

The subject also studies the interaction of individuals and firms in different market situations. On the other hand, the other branch of economics i.e.

macroeconomics studies the economy as a whole that is concerned with the general economic factors and focuses on the aggregate changes in growth rate, unemployment, gross domestic product, interest rates, inflation, etc.

In totality, it is a stream applying the principles of micro and macroeconomics for business decision-making.

Nature of Managerial Economics Managerial economics is an applied subject that uses economic theory and concepts in solving managerial problems.

i) Applied in Nature:

Managerial economics help managers in business decision-making by applying economic theories and models.

In the words of S. K. Deo, “Managerial economics is an application of economic theory, particularly of microeconomics theory, to practical problem-solving.”

ii) Managerial Economics is both Art and Science:

Managerial economics can be compared to science as it is a discipline of decision-making with regard to limited resources with alternate applications.

Managerial economics observes internal and external environments for managerial decision-making. As an art, it requires the knowledge, understanding, and capability in applying economic theory to achieve the firm’s objective.

iii) Dynamic: Managerial Economics deals with human beings, firms, and different market situations.

The stream is dynamic by nature and changes itself from time to time to cope-up with
dynamism and vitality according to the diverse nature of individuals and markets.

iv) Pragmatic:

Managerial economics is pragmatic in nature as it solves management decision problems by applying economic theory and various quantitative methods. It finds the optimal solution to various decision-making problems of businesses/ firms.

v) Normative:

Managerial economics is normative also as it includes the word ‘ought’ or ‘should’ and emphasizes the result of the firm or economy.

Managerial economics targets the maximum achievements of a firm or an economy.

vi) Inter-Disciplinary:

The subject has liaisons with other disciplines like mathematics, statistics, accounting, operational research, psychology, etc.

for proposing economic theories and concepts for managerial decisions making.

According to D. C. Hague, “Managerial Economics is concerned with the logic of economics, mathematics, and statistics to provide effective ways of thinking about managerial decision-making.”

vii)Based on Assumptions and limitations:

The validity of managerial concepts is not universal as each concept and theory is followed by certain assumptions and limitations.

The theory may not hold well at all if there is any change in assumptions.

Relationship with Traditional Economics: Managerial economics has its relationship with both the branches of economics i.e. micro and macro-economic.

It uses concepts from microeconomics such as marginal cost, marginal revenue, pricing theories and tactics, the elasticity of demand, and the theories of market structure in taking various managerial decisions.

Managerial economics also studies the microeconomics concepts of the price level, employment level, income level, investment, and consumption in the economy as well as the matters related to international trade, Money, public finance, etc.

ii) Relationship with Accounting:

Managerial economics uses perfect knowledge of accounting concepts to take various types of business decisions.

Accounting provides data regarding cost, revenue, and classification which helps the managers in achieving the profit and sales maximization objectives of the firm.

The relationship of managerial economics with accounting gave birth to a new area called ‘Managerial Economics.

iii) Relationship with Mathematics:

Managers use mathematical concepts and models for the optimal use of resources in achieving the profit maximization goal.

Mathematical techniques are widely used to manage various notions like elasticity of demand, incremental cost, etc.

Language English
No. of Pages240
PDF Size19 MB

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