Concept and Meaning of Managerial Economics
Economics is a social science and it studies human behaviors concerning the optimization of the allocation of available resources to achieve their ends. The wants and needs of individuals are limitless and the resources to mollify them are in restricted quantity. Thus, the scarcity of resources in comparison to human wants to create central economic problems. To solve these problems economics guides human beings about how to choose the alternative uses to achieve maximum satisfaction.
This fact is applied to all the entities of the economy like consumers, producers, firms, and the government as well. Managerial economics teaches how to mobilize the restricted resources of the business firm to get the best decision for the business.
The terms ‘Managerial Economics’ and ‘Business Economics’ are often alternative words used in managerial studies. Frequently it is also said economics for managers.
Business economics/managerial economics is the application of economics in the field of business management. It means it is the use of economic theory and methods to decision-making problems that a firm may have to face.
Managerial economics has been a separate science from traditional economics since the 1950s. After such, economists treat managerial economics as a young and growing science.
The American economist Joel dean has introduced managerial economics as a separate science in his book ‘Managerial Economics’ in 1951. He provided insight into managerial economics from his book.
Managerial economics provides the knowledge of how a firm uses economic theories and methodologies in practice.
It is also known as goal-oriented science because it deals with the (business decisions) achievement of business objectives; optimum allocation of limited resources, cost minimization, price determination, determination of market share, etc. which are also the basic objectives of managerial economics.
According to Joel Dean, “The purpose of managerial economics is to show how economic analysis can be used in formulating business policies”.
According to Mansfield, “Managerial economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making”.
Among the various definitions of managerial economics, almost all conclude that managerial economics is related to rational business decision-making and planning. Managerial economics is thus the science of decision making which links economic theories and principles with mathematics and statistics.
It is a synthesis of microeconomic theories and quantitative methods to find optimal solutions to managerial decision-making problems and thereby achieve its aims or objectives most efficiently. The concept and features or attributes of managerial economics are growing and can be briefly discussed below.
Features of Managerial Economics
Managerial Economics is the blend of microeconomics or microeconomic theories with the help of quantitative methods of decision science to get the solution to managerial decision-making issues.
Different economists have defined managerial economics in different words and views but the main notion of these defections is similar. Thus, major concepts and features of managerial economics covered in almost all the definitions can be briefly discussed below;
Managerial economics is microeconomic because it studies an individual firm. It means managerial economics sees the problems of firms only but not the issues of an entire economy. But managerial economics has to take the assistance of macroeconomic issues to recognize and adjust to the environment in which the firm operates.
Concerned with choice and allocation
Managerial economics entirely deals with the economic types of decision-making of a particular firm. This implies that managerial economics deals with the identification of economic choices and the allocation of scarce resources. It guides a business firm to choose and allocate scarce resources in an efficient manner.
Managerial economics is goal-oriented and prescriptive. It has its certain goals and it always works for achieving these fixed goals of the firm. It means it is there to help managers and business firms to achieve their goals within the needed time.
Conceptual and Metrical
Managerial economics is both conceptual and metrical. An application of quantitative techniques to business issues is considered judgmental and rationale for the problems to be solved.
Managerial economics is pragmatic. It applies such analytical tools, which are essential to make rational decisions and to improve the existing decisions of the firm. Managerial economics provides the appropriate solution to the practical problems faced by the firms.
Managerial economics assists the business firm to arrive at the summit of achievement by building suitable policies and plans on the basis of experiential or empirical proof, facts, and experiments.
Managerial economics always fixes the ways and goals of the firm and worries about how to achieve them with optimum efficiencies. As it deals with how to get the best out of the best, so it belongs to the normative nature of economic science. It tells about the aims and targets that a business has to fix and then guides a manager to get the best solution to related issues.
Managerial economics is an integration of different academic disciplines like economics, accounting, finance, human resources management, statistics, mathematics, operational research, psychology, and so on.
Uses the theory of the firm
Managerial economics studies only the matter of the theory of the firm. It means managerial economics is concerned with the decision-making (economic nature’s decision) of firms. For example, managerial economics includes the study of the cost revenue, price and output determination, profit planning, demand analysis, and demand forecasting of a firm.
Dynamic and developing
Managerial economics deals with human beings (i.e. human resources, consumers, producers, etc.) these variables change with time. The thought and nature of individuals are differing from one to another.
Thus, to deal with this dynamism the managerial economics should be changeable with time. Hence, managerial economics is a more refined and sophisticated discipline as compare to traditional economics.
Main the aim is to help the management
Managerial economics is developed to help businesses in the decisions making process and getting the best from the available alternatives. Managerial economics aims to help management in making rational decisions and preparing plans and policies for the future.
Therefore managerial economics is applied microeconomics. It always aims to assist managerial decision-making and planning by the combined use of microeconomic concepts, models as well as statistical and econometrics tools and methods. This has clearly shown by the concept and features of managerial economics presented above.
It is growing and young economics in the areas of business, commerce, and trade management. It has occupied a central magnetism in the field of business management as well as in the academic field. The use of managerial economics is growing day by day.
References and Suggested Readings
Salvatore, D., (2012). Managerial Economics. New York: McGraw Hill.
Dhakal, R., (2019). Managerial Economics. Kathmandu: Samjhana Publication Pvt. Ltd.
Dwivedi, D.N., (2008). Managerial Economics. New Delhi: Vikash Publishing House Pvt. Ltd.