Managerial economics is a study of application of managerial skills in economics. It helps in anticipating, determining and resolving potential problems or obstacles. These problems may pertain to costs, prices, forecasting future market, human resource management, profits and so on.
It studies the problems and principles of an individual business firm or an individual industry. It aids the management in forecasting and evaluating the trends of the market.
2. Normative Economics
It is concerned with varied corrective measures that a management undertakes under various circumstances. It deals with goal determination, goal development and achievement of these goals. Future planning, policy-making, decision-making and optimal utilisation of available resources, come under the banner of managerial economics.
Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed, based on certain exceptions, which are far from reality. However, in managerial economics, managerial issues are resolved daily and difficult issues of economic theory are kept at bay.
4. Uses Theory of Firm
Managerial economics employs economic concepts and principles, which are known as the theory of Firm or ‘Economics of the Firm’. Thus, its scope is narrower than that of pure economic theory.
5. Takes the Help of Macroeconomics
Managerial economics incorporates certain aspects of macroeconomic theory. These are essential to comprehending the circumstances and environments that envelop the working conditions of an individual firm or an industry. Knowledge of macroeconomic issues such as business cycles, taxation policies, industrial policy of the government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise.
6. Aims at Helping the Management
Managerial economics aims at supporting the management in taking corrective decisions and charting plans and policies for future.
7. A Scientific Art
Science is a system of rules and principles engendered for attaining given ends. Scientific methods have been credited as the optimal path to achieving one’s goals. Managerial economics has been is also called a scientific art because it helps the management in the best and efficient utilisation of scarce economic resources. It considers production costs, demand, price, profit, risk etc. It assists the management in singling out the most feasible alternative. Managerial economics facilitates good and result oriented decisions under conditions of uncertainty.
8. Prescriptive Rather Than Descriptive
Managerial economics is a normative and applied discipline. It suggests the application of economic principles with regard to policy formulation, decision making and future planning. It not only describes the goals of an organisation but also prescribes the means of achieving these goals.