Cyclical Unemployment – Definition, Causes and Cure
In the previous two articles, we studied about frictional and structural unemployment. They can be considered to be the mild and moderate form of unemployment respectively that can be suffered by an economy. They are not usually the ones being referred to when common people talk about unemployment. The most dreaded form of unemployment is […]
Managing the Affordable Housing Problem
The lack of affordable housing has become a serious issue across the entire world. This is primarily because of the loose monetary policies which were followed in the aftermath of the 2008 recession. The interest rates have been set at close to zero for the past ten years or so. As a result, the system […]
GDP and Terrorism
In the past few articles, we have spoken about the absurdity of the GDP system. This absurdity has been brought to light with the use of examples, examples which include common sense events like war, sickness and natural disasters. Common sense dictates that all these events are bad for the people and therefore for the […]
Quantitative Easing and the Forex Market
The policy of quantitative easing (QE) and quantitative easing (QE) tapering has an effect on many markets worldwide. One of these markets is the Forex markets. In 2012, the mere news of a possible quantitative easing (QE) tapering by the Fed sent the world currency markets into a tailspin as many other currencies belonging to […]
Real Estate Investing Myths
Amongst all investment options available, real estate is the one that buyers tend to get emotionally attached with. For this reason, people rationalize their emotional decisions with the help of many myths about real estate investing. If one wants to avoid getting entangled in the emotional aspects of real estate investing and make financially sound […]
Managerial Economics can be defined as amalgamation of economic theory with business practices so as to ease decision-making and future planning by management.
Managerial Economics assists the managers of a firm in a rational solution of obstacles faced in the firm’s activities. It makes use of economic theory and concepts. It helps in formulating logical managerial decisions.
The key of Managerial Economics is the micro-economic theory of the firm. It lessens the gap between economics in theory and economics in practice.
Managerial Economics is a science dealing with effective use of scarce resources. It guides the managers in taking decisions relating to the firm’s customers, competitors, suppliers as well as relating to the internal functioning of a firm.
It makes use of statistical and analytical tools to assess economic theories in solving practical business problems.
Study of Managerial Economics helps in enhancement of analytical skills, assists in rational configuration as well as solution of problems.
While microeconomics is the study of decisions made regarding the allocation of resources and prices of goods and services, macroeconomics is the field of economics that studies the behavior of the economy as a whole (i.e. entire industries and economies).
Managerial Economics applies micro-economic tools to make business decisions. It deals with a firm.
The use of Managerial Economics is not limited to profit-making firms and organizations. But it can also be used to help in decision-making process of non-profit organizations (hospitals, educational institutions, etc). It enables optimum utilization of scarce resources in such organizations as well as helps in achieving the goals in most efficient manner.
Managerial Economics is of great help in price analysis, production analysis, capital budgeting, risk analysis and determination of demand.
Managerial economics uses both Economic theory as well as Econometrics for rational managerial decision making. Econometrics is defined as use of statistical tools for assessing economic theories by empirically measuring relationship between economic variables. It uses factual data for solution of economic problems.
Managerial Economics is associated with the economic theory which constitutes “Theory of Firm”. Theory of firm states that the primary aim of the firm is to maximize wealth.
Decision making in managerial economics generally involves establishment of firm’s objectives, identification of problems involved in achievement of those objectives, development of various alternative solutions, selection of best alternative and finally implementation of the decision.
The following figure tells the primary ways in which Managerial Economics correlates to managerial decision-making.
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