What is Managerial Economics?

Managerial economics, used synonymously with business economics, is a branch of economics that deals with the application of microeconomic analysis to decision-making techniques of businesses and management units. It acts as the via media between economic theory and pragmatic economics. Managerial economics bridges the gap between ‘theoria’ and ‘pracis’. The tenets of managerial economics have been derived from quantitative techniques such as regression analysis, correlation and Lagrangian calculus (linear). An omniscient and unifying theme found in managerial economics is the attempt to achieve optimal results from business decisions, while taking into account the firm’s objectives, constraints imposed by scarcity and so on. A paradigm of such optmisation is the use of operations research and programming.

McGutgan and Moyer, “Managerial economics is the application of economic theory and methodology to decision- making problems faced by both public and private institutions”.

McNair and Meriam, “Managerial economics consists of the use of economic modes of thought to analyse business situations”.

Spencer and Siegelman, Managerial economics is “the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management”.

Haynes, Mote and Paul, “Managerial economics refers to those aspects of economics and its tools of analysis most relevant to the firm’s decision-making process”.

By definition, therefore, its scope does not extend to macroeconomic theory and the economics of public policy, an understanding of which is also essential for the manager.

Managerial economics studies the application of the principles, techniques and concepts of economics to managerial problems of business and industrial enterprises. The term is used interchangeably with business economics, microeconomics, economics of enterprise, applied economics, managerial analysis and so on. Managerial economics lies at the junction of economics and business management and traverses the hiatus between the two disciplines.

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