Topics: Economics, Microeconomics, Costs Pages: 37 (14229 words) Published: September 9, 2013
MANAGERIAL ECONOMICS MEANING OF 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. Managerial economics is thereby 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. DEFINITIONS OF MANAGERIAL ECONOMICS Edwin Mansfield: "concerned with application of economic concepts and economic analysis to the problems of formulating rational managerial decision." 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. Managerial decision areas include: • assessment of investible funds • selecting business area • choice of product • determining optimum output • determining price of product • determining input-combination and technology • sales promotion. Almost any business decision can be analyzed with managerial economics techniques, but it is most commonly applied to: • Risk analysis - various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk.[6] • Production analysis - microeconomic techniques are used to analyze production efficiency, optimum factor allocation, costs, economies of scale and to estimate the firm's cost function. • Pricing analysis - microeconomic techniques are used to analyze various pricing decisions including transfer pricing, joint product pricing, price discrimination, price elasticity estimations, and choosing the optimum pricing method. • Capital budgeting - Investment theory is used to examine a firm's capital purchasing decisions NATURE AND CHARACTERISTICS OF MANAGERIAL ECONOMICS: Following points constitute nature of managerial economics Managerial Economics is a Science Managerial Economics is an essential scholastic field. It can be compared to science in a sense that it fulfils the criteria of being a science in following sense: Science is a Systematic body of Knowledge. It is...
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