Page 7 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes Objectives

After studying this unit, you will be able to:
Explain the nature and scope of managerial economics

Identify the role of economics in decision making
Discuss the concepts of economic analysis

Introduction

Countless firms have used the well-established principles of managerial economics to improve
their profitability. Managerial economics draws on economic analysis for such concepts as cost,
demand, profit and competition. It attempts to bridge the gap between the purely analytical
problems that intrigue many economic theorists and the day-to-day decisions that managers
must face. It now offers powerful tools and approaches for managerial policy-making. It will be
relevant to present here several examples illustrating the problems that managerial economics
can help to solve. These also explain how managerial economics is an integral part of business.
Demand, supply, cost, production, market, competition, price, etc. are important concepts in
real business decisions.

1.1 Meaning and Definition of Managerial Economics

Managerial Economics is a discipline that combines economic theory with managerial practice.
It tries to bridge the gap between the problems of logic that intrigue economic theorists and
the problems of policy that plague practical managers. The subject offers powerful tools and
techniques for managerial policy-making. An integration of economic theory and tools of
decision sciences works successfully in optimal decision-making in face of constraints. A study
of managerial economics enriches the analytical skills, helps in the logical structuring of
problems, and provides adequate solution to the economic problems.
To quote Mansfield, "Managerial Economics is concerned with the application of economic
concepts and economic analysis to the problems of formulating rational managerial decisions."
According to McNair and Meriam, "Managerial economics is the use of economic modes of
thought to analyse business situations."
"Managerial Economics is concerned with the application of economic principles and
methodologies to the decision making process within the firm or organisation under the
conditions of uncertainty," says Prof. Evan J Douglas.
Spencer and Siegelman define it as "The integration of economic theory with business practice
for the purpose of facilitating decision making and forward planning by management."
According to Hailstones and Rothwel, "Managerial economics is the application of economic
theory and analysis to practice of business firms and other institutions."

1.2 Nature of Managerial Economics

A close interrelationship between management and economics has led to the development of
managerial economics. Management is the guidance, leadership and control of the efforts of a
group of people towards some common objective. It does tell us about the purpose or function
of management but it tells us precious little about the nature of the management process.

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