Role of Managerial Economics in the Business Decision-Making Process

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Managerial economics combines economic theories with decision science tools and as it is metrical and analytical it assists the managers to solve the complexity existed in the business.  Managerial economics through its skills and techniques always ensure the solution to business decision-making problems that may be faced by every type of business organization. Managerial economics plays a key role in the business decision-making process.

Similarly, it provides the basis for further future planning as well.  Thus, the major task and duty that managerial economics has got in any organization are to boost the efficiency of the business and managers, their decision issues and to increase the profitability of the business by establishing and forecasting fitting environments. However, the specific role of managerial economics in the business decision-making process can be pointed as;

Merging traditional economic theories to actual business behavior

Managerial economics makes an effort to provide an appropriate solution to the problems practically faced by the firms by removing the abstract concept and complexity of traditional economic theories and thereby it helps business firms to reach the height of success. Since managerial economics is more pragmatic than traditional economics and it finds empirical facts and applications in these theories to help in business decision making and problem-solving.

Estimating economic relationship

For every business firm, it has to connect internal as well as external factors that affect business decision making to make effective decisions. Relationship between different economic variables like demand and determinants of demand, cost and determinants of cost, profit, and its affecting factors and so on must be established to make effective estimation and decisions. 

Predicting economic quantities

Managerial economics with the help of several mathematical and statistical tools can predict economic variables and quantities needed in business firms to fulfill their targets.  For example, firms make their present decisions effective by predicting economic variables like quantity, production, profit, price, demand, etc. 

Helpful in understanding external factors

Managerial economics helps to understand different external factors affecting business decision making.  External factor refers to different macroeconomic variables and macroeconomic environment of the nation and globe that has a direct effect on the decision of a firm.

Trade cycle, government policies like fiscal, monetary and income policies, international trade, the balance of payment, etc are the components of the external economic environment and managerial economics study them effectively.

Basis of business policies

Managerial economics helps the firm to establish the economic relationship between variables and forecast the values of these variables through mathematical and statistical techniques.  The firm formulates business policies based on predicted economic quantities.

In such means, managerial economics serves to business decision problems and gives a basis of policies and plans relating to existing and future business undertakings of the firms. It means managerial economics has a greater role in the business decision-making process of every business organization.

References and Suggested Readings

Salvatore, D., (2012). Managerial Economics. New York: MCGraw Hill.

Dhakal, R., (2019). Managerial Economics. Kathmandu: Samjhana Publication Pvt.Ltd.

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