Managerial Economic

Production function Factors of production Production (economics)




Managerial Economics generally refers to the integration of economic theory with business practice. While economics provides the tools which explain the various concepts such as demand, supply, price, competition etc. Managerial economics applies these tools to the management of business In this sense, Managerial Economics is also understood to refer to Business Economics or Applied Economics.

“Since the early 1950s, confronted with the growing variability and unpredictability of the business environment , business managers have become increasingly concerned with finding rational and foresightful ways of adjusting to and exploiting environmental change. (Ansoff) We may therefore ,say that the business world attracted the attention of academicians from 1950 onwards and o gave rise to a separate treatment of business problems. As a result Managerial Economics came into being.


In its simplest terms Managerial Economics means the application of economic theory to the problems of management. Spencer and Siegelman defined managerial economics as “ The Integration Of Economic Theory With Business Practice For The Purpose Of Facilitating Decision Making And Forward Planning By Management.

It has two stages .

Stage One: Is the integration of economic theory with business practice. Stage Two: Is the application of stage one for decision making and forward planning.


Price is the interaction of supply and demand. When supply is short of demand, the price goes up. A shrewd businessman will always study the economic situation and apply them to his business. In other words, if supply is short he gets a higher price. Alternatively if the demand is less then he can cut down his production.

The problem of decision making has two aspects .

The problem of decision making has two aspects

1. The first one concerns...
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