Meaning and Scope of Managerial Economics

Topics: Economics, Microeconomics, Supply and demand Pages: 9 (2117 words) Published: November 4, 2008


Emergence of managerial economics as a separate course of management studies can be attributed to at least three factors.:

(a)growing complexity of business decision making process due to changing market conditions and business environment (b) consequent upon, the increasing use of economic logic , concepts theories and tools o economic analysis in the process of business decision making (c)Rapid increase in demand for professionally trained managerial manpower

The growing complexity of business decision- masking has inevitably increased the application of economic concepts, theories and tools of economic analysis in this area. The reason is that making an appropriate business decision requires a clear understanding of market conditions, the nature and degree of competition, art fundamentals and the business environment This requires intensive and extensive analysis of the market conditions in the product market, input market and financial market.. On the other hand, economic theories, logic and tools have been developed to analyze and predict market behaviour. 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 of great help in business decision making. The contribution of economics to business decision-making has come to be widely recognized. Consequently economic theories and analytical tools which are widely used in business decision-making, have crystallized into separate branch of management studies, called Managerial Economics or Business 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 with optimal allocation of scarce b resources which can be put to alternative uses


The Manager with a fixed amount of money at his disposal for the purpose of advertisement has to chose the most effective media.

2. The second one concerns uncertainty . as the course of events cannot be predicted, we say the course of events in future is uncertain. This is...
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