Economics Relationship with other subjects

Macro Economics, Statistics, Mathematics, Accounts etc., have contributed a lot in the growth of Managerial Economics. D.C. Hague has stated, "Managerial Economics uses the logic of Economics, Mathematics and Statistics to provide effective ways of thinking about business decision problems."

Economics has two main branches: micro-economics and macro-economics. Micro-economics has been defined as branch of economics where deals with the unit of study, an individual behavior or a firm. Macro-economics, on the other hand, is aggregate in character and deals with entire economy as a unit of study or deals with entire society behavior.


Another useful method throwing light upon the nature and scope of managerial economics is to examine its relationship with other subjects. In this connection, Economics, Statistics, Mathematics and Accounting deserve special mention. Prof. D.C. Hague has described managerial Economics uses the logic of Economics, Mathematics and Statistics to provide effective ways of thinking about business decision problems."

1. Managerial Economics and Traditional Economics:

Managerial Economics has been described as economics applied to decision-making. It may be viewed as a special branch of economics bridging the gulf between pure economic theory and managerial practice. The relation between Managerial Economics and Economics is as close as is Engineering to Physics and Medicines to Biology.

Traditional Economics has two main divisions: microeconomics and macroeconomics. Microeconomics; also known as price theory, is the main source of concepts and analytical tools for managerial economics. To illustrate, various microeconomic concepts such as elasticity of demand, marginal cost, the short and long runs, opportunity cost, various market forms, etc., are all of great significance to managerial economics. The chief contribution of macroeconomics is in the area of forecasting. The modern theory of income, employment, trade cycles, etc. has implications for forecasting general business conditions. As the prospects of an individual firm often depend greedy on general business conditions, individual firm forecasts depend on general business forecasts.

2.Managerial Economics and Accounting:

Managerial economics and accounting are closely interrelated. Accounting can be defined as the recording of financial operations of a business firm. A business manager needs a lot of accounting information data for logical analysis in decision-making and policy formulation at the level of firm. The accounting data and information has to be presented in a methodological manner worthy of analysis and interpretation for decision-making and future planning. This is why a new branch of accounting known as 'management accounting' has developed to help correct managerial decision-making. The main task of management accounting is to provide the sort of data which managers need to solve some business problems accurately.

3. Managerial Economics and Operational Research:

Operational Research is closely related to managerial economics. Operational research is the application of mathematical techniques to solving business problems. It provides all the data required for business decisions and forward planning. Techniques such as linear programming, game theory, etc. are due to the works of operational research, linear programming is extensively used in decision-making. Managerial economics is concerned with efficient use of scarce resources. Operational research is also concerned with efficient use of scarce resources. There is close affinity between managerial economics and operational research. Managerial economics gives special emphasis to the problems involving maximisation of profits and minimisation of costs, while operational research focuses attention on the concept of optimisation. Managerial economics has made much use of optimisation concept but initially started with marginal analysis taken from economics. Managerial economics uses the logic of Economics, Mathematics and Statistics for undertaking effective decisions, while operational research techniques based on these ways of thinking are being used to solve decision-making problems in business. Again, both operational research and managerial economics are concerned with taking effective decisions.

Operational research is a tool in the hands of managerial economics to solve day-to-day business problems. Managerial economics is an academic subject which aims at understanding and analysing problems and decision-making by a firm. Thus, operational research is a functional activity pursued by specialists within the firm. Though it is expensive and a slow process, it helps managers make accurate solutions by means of providing necessary data.

4. Managerial Economics and Marketing:

Managerial Economics helps marketing in two ways. First, as a basic discipline, providing tools and concepts of analysis and second, as an integrating area, providing its judgement on the optimum sales volume under the given cost function of a firm, market structure, and the objective function to be optimized. How much to sell under given circumstances is answered by an economist and how to sell the desired amount of output is the domain of the marketing manager. Sometimes, selling more than what is desired may harm the interest of the firm. It has, however, the sanction neither of Economics nor of marketing principles as both stresses on the protection of long run interests of the firm.

Economics is of a great help to marketing in the sphere of pricing. Of the three basic aspects of pricing viz. value theory, price theory, and pricing techniques, the first two are the exclusive domain of Economics, while the third one forms part of both Managerial Economics and marketing. In the case of pricing techniques, there are varying practices in different organizations. In many pricing is handled by the accounts staff such as chartered accountants and company secretaries. There are several areas of marketing which are totally or heavily dependent on economic theory. These are:

  • Theory of the Firm

  • Concepts of goals and goal formulation

  • Market structures

  • Pricing

5. Managerial Economics and Production Management:

Production is defined as the creation of utility by transforming input into output. It usually refers to manufacturing activity and the term operations are used to denote a wider meaning, encompassing all economic activity which creates economic utility. Operations personnel have four basic responsibilities to fulfill while producing a firm's products or services: [Raymond R. Mayor, 1975 p. 3]

  • Supply of quantities,

  • Maintenance of time-bound deliveries,

  • Fulfillment of quality requirement, and

  • Economizing production operations.

For this, the personnel have to deal with a number of inter-related areas including production planning, production control, quality control, methods analysis, materials handling, plant layout, inventory control, work management, and wage incentives. A knowledge of Economics would help operations personnel not only to economize their production operations but also help them

  • To monitor and analyse the input market,

  • To monitor market maturity, technical maturity, and competitive maturity of products being produced,

  • To have better coordination with the R & D department with respect to product and process innovation, and

  • To take decisions on production targets.

6. Managerial Economics and Personnel Management:

A human resource manager has to concern himself with two types of problems: (i) an effective utilization of human resources in terms of costs and productivity and (ii) improvement in the terms and conditions of employment as an adjunct to employee satisfaction. Manpower planning, at the micro level, is another important function of an HRD manager wherein a firm ensures that it has the right number and the right kind of people, at the right places, at the right time, doing work for which they are economically most useful.

Managerial economics can help personnel management by analysing the economic and financial aspects of personnel problems both in relation to the economic welfare of the firm and to the prevailing environment of the economy as a whole. It explains the economic implications of policies and strategies and judges their consistency with respect to organizational objectives as well as internal and external constraints. It can provide a safety range for wage negotiations with trade unions. Business forecasting could provide information for devising employment norms of the sales force.