The Case Against Labor Unions
It is a common belief amongst the general population that labor unions work in the interest of the laborers. In fact, they believe that the power that collective bargaining gives these workers is probably the only thing that prevents their exploitation at the hands of greedy corporations. They had all heard about the history of […]
The Process of Making a Real Estate Price Index
The real estate sector is deeply intertwined with the overall economy. An increase in the real estate sector causes a corresponding increase in the GDP of a nation. Hence, the decrease is real estate activity also causes economic mayhem. It is for this reason that real estate needs to be monitored carefully by governments. By […]
China’s Modern Day Ghost Cities
The GDP system has found several criticisms. However, none of the criticisms have been as apparent as an unusual phenomenon called “ghost cities” and “ghost towns” which have cropped up all across China. The sheer wastage and diversion of resources to non productive purposes to meet the government’s targets for GDP growth is apparent in […]
Linear Regression Model – Prerequisites, Case Study, Goodness-of-Fit
Suppose you are an HR professional and want to determine: Whether age of an employee has a substantial effect on their maturity The importance of experience and capability on remuneration The importance of IQ (Intelligence Quotient) vs. EQ (Emotional Quotient) on problem handling capability How sedentary lifestyle at workplace affects employee output If a specific […]
Quantitative Easing and Income Inequality
Ever since quantitative easing has been implemented as a mainstream policy, Central banks have had to fend off charges that it is leading to increased income inequality. The central banks have been alleging that quantitative easing has not created more income inequality. They often cite the low inflation figures as proof of this claim. In […]
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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