Choosing the Right Counterparty in Real Estate
The average person assumes that buying real estate from an individual is about the same thing as buying it from a developer. However, that is not the case. Even though the property under consideration is the same, the motives and capabilities of the buyer vary vastly. As a result, the deals made will be very […]
Consumer Demand – Demand Curve, Demand Function & Law of Demand
What is Demand? Demand for a commodity refers to the quantity of the commodity that people are willing to purchase at a specific price per unit of time, other factors (such as price of related goods, income, tastes and preferences, advertising, etc) being constant. Demand includes the desire to buy the commodity accompanied by the […]
Government Spending: A Cure for Unemployment
All over the world, governments are held accountable for the unemployment rates prevalent in their country. It is as if, the government’s main duty is not to govern but rather to provide employment to every willing person in the country. Therefore, whenever unemployment rears its ugly head, governments find themselves under increasing pressure to change […]
The Problems with the GDP System and Requirements from the New Metric
In the previous articles, we have discussed the various pitfalls of the GDP system. We have also made the case for an urgent need for a serious and complete overhaul of the GDP system i.e. GDP must be replaced by another metric. However, we have not explained what this other metric should be like. In […]
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) have become the buzzword when it comes to investing in real estate. They have provided above average returns in countries like the United States where they were first implemented. This has led to the growing popularity of the Real Estate Investment Trusts (REITs) and today more countries in the world […]
Managerial Economics can be defined as amalgamation of economic theory with business practices so as to ease decision-making and future planning by management.
Managerial Economics assists the managers of a firm in a rational solution of obstacles faced in the firm’s activities. It makes use of economic theory and concepts. It helps in formulating logical managerial decisions.
The key of Managerial Economics is the micro-economic theory of the firm. It lessens the gap between economics in theory and economics in practice.
Managerial Economics is a science dealing with effective use of scarce resources. It guides the managers in taking decisions relating to the firm’s customers, competitors, suppliers as well as relating to the internal functioning of a firm.
It makes use of statistical and analytical tools to assess economic theories in solving practical business problems.
Study of Managerial Economics helps in enhancement of analytical skills, assists in rational configuration as well as solution of problems.
While microeconomics is the study of decisions made regarding the allocation of resources and prices of goods and services, macroeconomics is the field of economics that studies the behavior of the economy as a whole (i.e. entire industries and economies).
Managerial Economics applies micro-economic tools to make business decisions. It deals with a firm.
The use of Managerial Economics is not limited to profit-making firms and organizations. But it can also be used to help in decision-making process of non-profit organizations (hospitals, educational institutions, etc). It enables optimum utilization of scarce resources in such organizations as well as helps in achieving the goals in most efficient manner.
Managerial Economics is of great help in price analysis, production analysis, capital budgeting, risk analysis and determination of demand.
Managerial economics uses both Economic theory as well as Econometrics for rational managerial decision making. Econometrics is defined as use of statistical tools for assessing economic theories by empirically measuring relationship between economic variables. It uses factual data for solution of economic problems.
Managerial Economics is associated with the economic theory which constitutes “Theory of Firm”. Theory of firm states that the primary aim of the firm is to maximize wealth.
Decision making in managerial economics generally involves establishment of firm’s objectives, identification of problems involved in achievement of those objectives, development of various alternative solutions, selection of best alternative and finally implementation of the decision.
The following figure tells the primary ways in which Managerial Economics correlates to managerial decision-making.
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