Discuss What Managerial Economics Is All About

Topics: Economics, Macroeconomics, Business Pages: 11 (3432 words) Published: December 4, 2012
Introduction Managerial Economics and Business economics are the two terms, which, at times have been used interchangeably. Of late, however, the term Managerial Economics has become more popular and seems to displace progressively the term Business Economics. The discovery of managerial economics as a separate course in management studies has been attributed to three major factors: i) The growing complexity of business decision-making processes, because of changing market conditions and the globalization of business transactions. ii) The increasing use of economic logic, concepts, theories, and tools of economic analysis in business decision-making processes. iii) Rapid increase in demand for professionally trained managerial manpower.

It should be noted that the recent complexities associated with business decisions has increased the need for application of economic concepts, theories and tools of economic analysis in business decisions. The reason of making appropriate business decision requires clear understanding of existing market conditions, market fundamentals and the business environment in general. Business decision-making processes require intensive and extensive analysis of the market conditions in the product, input and financial markets. Economic theories, logic and tools of analysis have been developed for the analysis and prediction of market behaviors. The application of economic concepts, theories, logic, and analytical tools in the assessment and prediction of market conditions and business environment has proved to be a significant help to business decision makers all over the world.

Definition of Managerial Economics Managerial economics has been generally defined as the study of economic theories, logic and tools of economic analysis, used in the process of business decision making. It involves the understanding and use of economic theories and techniques of economic analysis in analyzing and solving business problems, evaluate business options and opportunities with a view of arriving to appropriate business decision.


Spencer and Siegelman have defined Managerial Economics as "The integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management"1. Douglas also defined “Managerial Economics is concerned with the application of economic principles and methodologies to the decision making-process within the firm or organization. It seeks to establish rules and principles to facilitate the attainment of the desired economic goals of management”2. Davis and Chang defined as “Managerial economics applies the principles and methods of economics to analyse problems faced by management of a business, or other types of organizations and to help find solutions that advance the best interests of such organizations”3. Mansfield defines “Managerial Economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making”4 We may, therefore define Managerial Economics as the discipline which deals with the application of economic theory to business management. Managerial Economics thus lies on the borderline between economics and business management and serves as a bridge between economics and business management. Economic principles contribute significantly towards the performance of managerial duties as well as responsibilities. Managers with some working knowledge of economics can perform their functions more effectively and efficiently than those without such knowledge. Taking appropriate business decisions requires a good understanding of the technical and environmental conditions under which business decisions are taken. Application of economic theories and logic to explain and analyze these technical conditions and business environment can contribute significantly to the rational decision-making process.

1. M H Spencer and L Seigelman, Managerial Economics,...
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