Meanning of Managerial Economics

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Managerial economics/applied microeconomics can be defined as the use of economic analysis to make business decisions involving the best use of organizations scarce resources/the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve her objectives most efficiently.

M.E may also be defined as the study of economic theories, logic and methodology, which are generally applied to seek solutions to the practical problems of business. M.E is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management

It can also be defined as the application of economic theory (Micro and macro economics) and decision science tools (Mathematical economics and Econometric) to find the optimal solution to managerial decision making problems.

The meaning of this definition can best be explained with the aid of the following diagram,


Managerial economics provides a link between economic theory and decision sciences in the analysis of managerial decision making. Economic theory which consists of microeconomics (focusing on individual consumers, firms and industries) and macroeconomics (focusing on total output, incomes and employment) contains materials that bear on managerial decision making particularly microeconomics. That is, managerial economics draws heavily from microeconomics as compared to other areas of economic theory.

In theory, there is no difference between regular economic and managerial economics.

The standard economic theory provides the basis for managerial economics. The difference between economic theory and managerial economics is in the way economics is applied.

The emphasis of microeconomic theory is in how individual decision of buyers and sellers leads to efficient outcome of the society as a whole.

The application concerns the effects of the actions...
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