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Managerial Economics

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Topics: Economics
Managerial Economics
Introduction
Economic principles inform good business decision making. Although economics is sometimes dismissed as a discourse of practical relevance to only a relatively small circle of academicians and policy analysts who call themselves economists, sound economic reasoning benefits any manager of a business, whether they are involved with production/operations, marketing, finance, or corporate strategy. Along with enhancing decision making, the field of economics provides a common language and framework for comprehending and communicating phenomena that occur within a business, as well as between a business and its environment.

Definition
Managerial economics is a social science discipline that combines the economics theory, concepts and known business practices in order to make the process of decision making easy. It is a very useful concept for every manager that is planning for the future.
Most of the complex management decision facing a firm can be broken down in a series of logical solutions. A key area of managerial economics is the theory of a firm that entails the best mix of the scarce resources to maximize profits within the firm. Marginal benefits and cost analysis is also another broad area in managerial economics. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firm’s scarce resources.
Pupose of Managerial Economics
 Use the theory of the firm to model business organizations
 Apply demand theory to establish the elasticity of demand
 Use demand estimation to forecast demand trends and change
 Apply production theory to manage production
 Use cost theory to establish short and long run behavior
 Describe market structures to establish market equilibrium
 Use game theory to decide on strategies
 Use pricing strategies to enable organizational coherence
 Carry out investment analyses to manage assets and capital
 Use macroeconomic principles to address market failures

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