An Introduction of Managerial Economics
“Managerial Economics” term is very old. The word has taken place in last fifty years or so. Economics is the study of human behaviour in production, distribution and consumption of material goods. Management is the disciplinary work of organizing and allocating a firm’s resources and objectives. So, these two definitions give the appropriate understanding of managerial economics.
Managerial economics is interchangeable with Business Economics. In spite of, there are some differences between these two terms.
Business Economics is known to understand for running any business.
Managerial Economics emphasizes on the function of managerial function of a business firm.
We can take some definition of Managerial Economics to clear its essence. Dean writes in his book Managerial Economics Text book, “Managerial Economics is the use of economic analysis in the formulation of business policies.” So, he emphasizes it as business policies.
On the other hand, Spencer and Seigelman, define it, “the integration of economic theory with business practice to facilitate decision making and forward planning.” So, the definition reveals it as business practices, decision making and forward planning.
Scope of Managerial Economics:
We will conclude it as a manager decision. So, for a manager there is different areas in which decision are required to be taken. These can be classified as:
Decision relating to demand – We already know, every manager is concerned with the demand for his product. So, a manager takes decision regarding the quality and quantity of his product. There are many economic tools which are applied during the decision making – Demand, Elasticity of Demand and Demand Forecasting.
Decision related to cost and production – Every manager has to analyze the cost and various laws governing production that is also a part of managerial economics.
Decision relating to price and market – We can’t escape with market analysis. So, Market analysis is the part of managerial economics. A manager should have various market structures and various pricing policies.
Decision relating to profit management – Maximum profit is the essence of every firm. So, these can be related to profit management.
Macro economic factor – A firm depends on socio-economic environment. So, to understand macro level factors there are needed of macro factors.
Significance of Economic Analysis:
All the economic has been divided into two categories – Macro and Micro. Micro economics are related to consumer products, individual products, whereas Macro is attached with aggregate demand, national income.
The same situation comes in a business man life. There is also needed of priority of business and products. A business man decides market segmentation, product segmentation and takes proper decision.
Definite and indefinite results are the outcome of market. These are inevitable in market society. This can be called as uncertainty.
