MANAGERIAL ECONOMICS
Definition of Managerial Economics
• 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.
• Spencer and Siegelman define it as 'The integration of economic theory with business practices for the purpose of facilitating decision making and forward
planning by management.'
• According to Hailstones and Rothwell, 'Managerial economics is the application of economic theory and analysis to the practice of business firms and
other institutions.'
Basic Features of Managerial
Economics
• a) It is concerned with decision making of an economic nature.
• b) It is micro-economic in character.
• c) It largely uses the body of economic concepts and principles, known as the
‘theory of the firm’.
• d) It is goal-oriented and prescriptive.
• e) Managerial economics is both conceptual and metrical. It includes theory with
measurement.
Is Managerial Economics a Science or an
Art?
Managerial Economics as an
Art:
Managerial Economics as a Science:
• Science is a systematic body of • Art refers to skill, talent, and ability in
knowledge. It is based on methodical performing work.
observation.
• Managerial economists utilize their
• Managerial economics is also a science knowledge and understanding to achieve
of making decisions with regard to scarce organizational goals.
resources with alternative applications.
• Managerial economists must put
• It is a body of knowledge that theory into practice using practical skills.
determines or observes the internal and
external environment for decision
making.
Nature of Managerial Economics
1. Resource Allocation: Managers must allocate scarce resources with alternative
uses wisely.
2. Components of Microeconomics: Deals with problems faced by individual
organizations, such as demand for products.
3. Components of Macroeconomics: Organizations are influenced by external
environments such as government policies.
4. Dynamic Nature: Managerial economics evolves with changing environments
and human behaviors.
Scope/Importance of Managerial
Economics
1. Demand Analysis and Forecasting: Helps in forecasting and maintaining goods
and services.
2. Cost and Production Analysis: Cost estimates guide pricing, cost control, and
profit planning.
3. Profit Management: Helps organizations maximize profit amidst uncertainty.
4. Capital Management: Involves planning and controlling capital expenditure.
5. Analysis of Business Environment: Evaluates external factors affecting business
growth.
