Definition of Managerial Economics PDF

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What is the nature and scope of managerial economics? The nature and scope of managerial economics includes taking a managerial problem and suggesting a course of action to solve the problem. The problems include anything related to the managerial process of a business, such as account management, production and inventory or sales and marketing. Managerial economics is the "application of the economic concepts and economic analysis to the problems of formulating rational managerial decisions". As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis, correlation and calculus.

What is managerial economics? Prof. Stigler says “economics is the study of the principles governing the allocation of scarce means among competing ends”. Following his definition, we can safely say that the economics for managers is

application of this study in critical business decisions. That’s why some call it business economics and others as applied economics. Yet some like to say it as economics for managers. Can these terms be used interchangeably? But the term managerial economics seems more appropriate as economics principles are applied by the managerial economists; the managers. A lot of material has been written so far but crux of the discipline is analytical decision making process for allocation of scarce resources to the best possible alternatives. The process may take place in private business or public policies, ultimately the managers have to decide what is better for the competing ends. They are recruited to apply logic and economic analysis tools to

evaluate their options to make the best choices for their employers. Definitions There is a dispute on the question whether managerial economics is an art or a science. Some may soft the tone and term it as a social science. Others may stick to their guns to prove that it is an art. But leaving the debate aside, let’s see how big names in the field of economics define it:

1- Mansfield says: “Managerial economics is concerned with the application of economic principles and methodologies to the decision process within the organization. It seeks to establish rules and principles to facilitate the

attainment of the desired economic goals of management.” 2- Spencer and Siegelman think: It is “the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.” 3- Joel Dean declares: "The purpose of managerial economics is to show how economic analysis can be used in formulating business policies" 4- McNair & Meriam calculate: “Managerial economics deals with the use of economic modes of thought to analyse business situation". 5- Henry and Hayne say: “Managerial economics is economics applied in decision making. It is a special

branch of economics. That bridges the gap between abstract theory and managerial practice.” 6- E.J.Douglas finds: “Managerial Economics seeks to establish rules & principles to facilitate the attainment of the desired economic goals of management.” 7- Pappas & Hirschey think: “Managerial economics applies economic theory and methods to business and administrative decision-making.” 8- Salvatore terms: “Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve its objectives most effectively.”

9- Howard Davies and Pun-Lee Lam define: “It is the application of economic analysis to business problems” 10- Davis & Chang say: “Managerial economics applies the principals and methods of economics to analyze problems faced by the management of a business, or other types of organizations and to help and to help find solutions that advance the best interests of such organizations.” 11- Best of all, Prof. Evan J. Douglas defines so: “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.”

Key Points in These Definitions If you analyze these definitions you may reach to the following key points: 1. It is application/integration of principles and methodologies of economics 2. on business issues 3. to make choices 4. for attainment of desired economic goals, and 5. future policies/planning 6. under the current condition of uncertainty. Applied Economics The economists who term managerial economics as an applied economics seem correct here. In fact economics contains a lot of abstract theories and ideas. Unless these abstract ideas are applied in the real life,

they remain just academics. The managerial economics provide analytical techniques which help us to apply economics principles in our sphere of work, private or public. We can witness results of the application and even come up with new conclusions. For Business Issues It is obvious for managers in the private sector. What about the public managers? It means a lot for them too! Governments are involved with economic issues like subsidies, price ceilings, price flooring, tariffs, quotas, taxes, grants, consumer price index, national income, budgets, revenue generation, money spending, health, education, waste management etc. The list is long even if you

don’t think of government run public entrepreneurs. So, underlying principles of managerial economics are equally applicable to the public sector. (We are differing here with maxim, “the government had no business to do business”. Can you share who had coined this?) So, Managerial economics is an analytical engine with tools to apply on economic issues in public or private sectors. Choice/Decision Making Naturally, when managers apply economic principles on business situations, they find a number of alternatives. You may have to use the managerial economics principles and tools for analysis of production, risks and pricing, demand forecasting, capital budgeting, minimization of costs,

opportunity costs etc. You have to make choices amongst from the available options with the scarce resources. Future Policies/Planning The managerial economics helps the managers to come forward with such policies and planning which can help the organization to attain its desired goal; the maximization of profit. Conditions of Uncertainty You know the conditions of risk and uncertainty are involved in all business situations. Uncertainty is a condition where there is possibility of more than one result. You can talk about probability of outcomes but no judgment can be given. The managerial economics provides us tools which help us to make the best choice.

In a nutshell, we may define managerial economics as an application of economics analytical tools to make the best choices for attainment of desired goals and future policies, under condition of uncertainty....