Mangerial Economics

Topics: Economics, Decision making, Decision theory Pages: 120 (33751 words) Published: August 18, 2013

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Definition of Managerial Economics

Managerial economics refers to those aspects of economics and its tools of analysis most relevant to the firm’s decision-making process. According to MeNair and Meriam, managerial economies consists of the use of economic models of thought to analyze business situations. Some writers consider managerial economics as the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management. The underlying idea of all these definitions is that managerial economics means economics applied in decision-making. So we may consider managerial economics as a special branch of economics bridging the gap between abstract theory and managerial practice.

It may be pointed out here that effective decision-making at the firms’ level calls for a careful analysis of a choice between alternative courses of action. Economic theory offers a variety of concepts and analytical tools which can be of considerable assistance to the manager in his decision-making process. In fact actual problem-solving may require many skills and tools which are not available in the traditional economist’s. For example, knowledge of accounting and of statistical concepts and methods, which are not taught in economics, can help the analyses to apply more effectively the economic tools in a concrete situation. The problems of industrial management do not neatly fall into one academic discipline or another. Rather they tend to out across different disciplines.

Managerial economics is pragmatic, it is concerned with analytical tools that are useful, that have proven themselves in practice, or that promise to improve decision – making in the future. In the attempt to be practical it cuts through many of the refinements of theory.

Managerial economies differs from other discipline in the field of economics in two important respects. First, it is that portion of economics which has to do specifically with managerial decision making. Therefore, it makes a selection from among all the theoretical tools available and those that are directly applicable, empirically based, and thus testable. These qualifications do not mean that these tools are either easier to work with or to comprehend or that they do not require atleast as high an order of economic know-how as the rest of economics.


Haynes and others point out that y definition the scope of managerial economics does not extend to macro economic theory and the economics of public policy an understanding of which is who essential for the manager. This is because there is an important link between the two in so far as the decision at the firm level must take into account the trends in the economy and the impact of a host of environmental factors. Hence in our decision we extend its scope to macro economic theory also.


The simplest way to calrify the scope of field of study is to discuss its relation to other subjects. In this connection it is easy to see that managerial economics has close connection with economics, the theory of decision-making, operation research, statistics and accounting. The fully trained managerial economist integrates concepts and methods form all of these disciplines, bringing them together to bear on managerial problems.


Managerial economics has been defined as economics applied in decision-making. It is a special branch of economics bridging the gap between abstract economic theory and managerial practice. The primary source of concepts and analytical tools for managerial economics in micro-economic theory or what is popularly termed as Marshallian economics concepts such as the elasticity of demand, marginal cost, the...
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