Meaning and Definition of Managerial Economics

Managerial Economics
Written by webpunit

Managerial Economics – Economics, being a social science, has the basic function of studying the ways in which people, households, firms and nations maximize their scarce resources and opportunities. This is known as Maximising or Optimising behavior in economic terms. Thus, optimization means to select among the best available options with the sole objective of maximizing profits from the available resources. Economics, therefore, can be termed as a social science that studies human behavior with respect to the optimization of available resources to accomplish the given desires and wants.

Meaning and Definition of Managerial Economics

Various tools that are provided by economics, applied to business management. Alternatively, the application of economic theory to the problems of management is referred to as managerial economics.

The solving of problems at the level of the firm by applying economics is known as managerial economics. The business executive is capable of assuming and analysis of things and thus profit maximization is the emphasis of economics resulting in getting satisfactory profits.

According to Jeal Dean, “The purpose of managerial economics is to how economic analysis can be used in formulating policies”.

The other names for managerial economics are, Business Economics or Economics for Firms.

Managerial economics is a venture to use economics and economic logic in formulating the policies of business. Thus, managerial economics is that form of economic knowledge that is used in the analysis of business problems for taking the relevant business decisions and devising forward plans.

Nature of Managerial Economics

following is the nature of managerial economics:

Micro – Economic in Nature:

The branch of economics which deals with individual units of an economy is called micro-economics. These individual units may be either a firm or a person or a group of firms or a group of persons.

2) Pragmatic:

Managerial economics is practical in nature. Rigid and abstract theoretical frameworks are provided by managerial economics to managers. It is said to be pragmatic in nature because it avoids complex abstract issues of economic theories at one end, while at another end it incorporates complications that are ignored by economic theory in order to analyze the overall situation where managerial decisions are to be taken.

3) Related to Normative Economics:

Economics can also be classified as positive or normative. Positive economics states the economic phenomenon that is observed and normative economics determines what should be done which means discriminating the ideal from the actual.

4) Conceptual in Nature:

Managerial Economics is based on the solid conceptual foundation of economics. The subject-matter of managerial economics is not irrational. Analysis of business problems on the basis of established concepts is the objective of managerial economics.

5) Utilizes Some Theories of Macro-Economics:

Macro-economics envisages all the individual matters that are integrated to be the part of the analysis of the problems of the economy as of a nation not pertaining to an individual that is operated in the environment affects and gets affected. Thus, the majority of the aspects that are related in such a manner becomes the subject-matter of micro-economics.

6) Problem-Solving in Nature:

Managerial economics not only analyses the managerial problems of business units but it aims to resolve the business problems also which provides optimal solutions. Hence, it is problem-solving in nature.

Also Read:- Meaning, Definition and Models of Organisational Behaviour

7) Managerial Economics Deals with the Application of Economics:

Managerial economics studies and deals with economic theory that are applied to business management. The relevant aspects of economic theory’ like demand, supply, production, pricing, markets, etc., must be carefully understood by the managers which facilitate them to manage the business in an organized manner by applying the principles of economics in making managerial decisions. Following are some of the important aspects of economic theory which can be applied to business management:

  1. Demand Analysis: It includes Laws of demand, the elasticity of demand, determinants of demand, etc.
  2. Production Analysis: It includes Laws of variable proportions, Law of returns to scale, economies and diseconomies of scale, etc.
  3. Market Analysis: It includes the nature of product-market like perfect competition, monopoly, oligopoly, monopolistic competition. Product pricing and output decisions in different, forms of market, etc.

8) Managerial Economics is the Study of Allocation of Resources: Proper allocation of resources is fundamental in managing the business. The theory of economics deals with the problems of resource allocation such as•what to produce, how to produce, and for whom to produce. Thus, the theory of economics, which is the fundamental of managerial economics, specifies the significance of the allocation of resources to the application of the principles of managerial economics. Allocation of resources includes the following concepts:

  1. Input Allocation: It includes raw materials, labor hours, machine hours, etc.
  2. Output Allocation: It includes meeting customer’s demand in different segments of the market at different. locations.
  3. Allocation of Funds: It includes the efficiency of usage of cash and other resources. Ratio analysis and financial statement analysis helps in making decisions about fund allocation.

9) Inter-disciplinary:

Managerial economics being a new discipline is the integrated form of multi-disciplines.” Its techniques, tools, theories, and contents emerge from different subjects, such as Economics, Management, Statistics, Mathematics, Accountancy, Sociology, and Psychology.

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