Douglas - “Managerial economics is the application of economic principles and methodologies to the decision-making process within the firm or organization.” Pappas & Hirschey - “Managerial economics applies economic theory and methods to business and administrative decision-making.” Salvatore - “Managerial economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most effectively.” Why Managerial Economics?
* A powerful “analytical engine”.
* A broader perspective on the firm.
* what is a firm?
* what are the firm’s overall objectives?
* what pressures drive the firm towards profit and away from profit * The basis for some of the more rigourous analysis of issues in Marketing and Strategic Management. * Economics contributes to a great deal towards the performance of managerial duties and responsibilities. * Like : Biology – Medical profession
Physics - Engineering
* Managers with working knowledge of economics can perform their functions more efficiently than those without it. * The emphasis here is on the maximization of the objective and limitedness of the resources. The task of management is to optimize the use of resources.
2. What are the characteristics and scope of Managerial Economics? 1. Microeconomics: It studies the problems and principles of an individual business firm or an individual industry. It aids the management in forecasting and evaluating the trends of the market. 2. Normative economics: It is concerned with varied corrective measures that a management undertakes under various circumstances. It deals with goal determination, goal development and achievement of these goals. Future planning, policy-making, decision-making and optimal utilisation of available resources, come under the banner of managerial economics. 3. Pragmatic: Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed, based on certain exceptions, which are far from reality. However, in managerial economics, managerial issues are resolved daily and difficult issues of economic theory are kept at bay. 4.Uses theory of firm: Managerial economics employs economic concepts and principles, which are known as the theory of Firm or 'Economics of the Firm'. Thus, its scope is narrower than that of pure economic theory. 5.Takes the help of macroeconomics: Managerial economics incorporates certain aspects of macroeconomic theory. These are essential to comprehending the circumstances and environments that envelop the working conditions of an individual firm or an industry. Knowledge of macroeconomic issues such as business cycles, taxation policies, industrial policy of the government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise. 6.Aims at helping the management: Managerial economics aims at supporting the management in taking corrective decisions and charting plans and policies for future. 7. A scientific art: Managerial economics has been is also called a scientific art because it helps the management in the best and efficient utilization of scarce economic resources. It considers production costs, demand, price, profit, risk etc. It assists the management in singling out the most feasible alternative. Managerial economics facilitates good and result oriented decisions under conditions of uncertainty. 8 Managerial Economics for administration of organization: Managerial economics helps...