Managerial Economics


Managerial Economics (also called Business Economics) a subject first introduced by Joel Dean in 1951, is essentially concerned with the economic decisions of business managers. It is a branch of Economics that applies microeconomic analysis to specific business decisions (i.e. Economics applied in business decision-making). Managerial Economics may be viewed as Economics applied to problem solving at the level of the firm. The problems of course relate to choices and allocation of resources, which are basically economic in nature and are faced by managers all the time. It is that branch of Economics, which serves as a link between abstract theory and managerial practice. It is based on economic analysis for identifying problems, organizing information and evaluating alternatives. In other words Managerial Economics involves analysis of allocation of the resources available to a firm or a unit of management among the activities of that unit. It is thus concerned with choice or selection among alternatives. Managerial Economics is by nature goal-oriented and prescriptive, and it aims at maximum achievement of objectives.

Managerial Economics help managers to learn the economic principles which are relevant to decision-making in such areas as production, personnel, marketing and finance. A clear understanding of economic principles will help the manager in his activities. For example, XYZ Ltd. has limited financial, human, and physical resources. XYZ Ltd. managers seek to maximize the financial return from these limited resources. They should apply Managerial Economics to develop pricing and advertising strategies, design their organizations, and manage purchasing.

Managerial Economics applies economic theory and methods to business and administrative decision-making. Managerial Economics prescribes rules for improving managerial decisions.

Managerial Economics also helps managers to recognize how economic forces affect organizations and describes the economic consequences of managerial behaviour. It links traditional Economics with the decision sciences to develop vital tools for managerial decision making. This process is illustrated in Fig.

The role of Managerial Economics in managerial decision-making.

Managerial Economics has applications in both profit and non-profit sectors. For example, an administrator of a non-profit hospital strives to provide the best medical care possible given limited medical staff, equipment and related resources. Using the tools and concepts of Managerial Economics, the administrator can determine the optimal allocation of these limited resources. In short. Managerial Economics helps managers to arrive at a set of operating rules that aid in the efficient use of scarce human and capital resources. By following these rules, businesses, non-profit organizations and government agencies are able to meet objectives efficiently.

Thus. Managerial Economics applies the principles and methods of Economics to analyze problems faced by the management of a business or other types of organizations and helps to find solutions that advance the best interests of such organizations.