DEFINITION OF MANAGERIAL ECONOMICS

M/E is a science which deals with the application of economic theory in managerial practice. It is the study of allocation of resources available to firm among its activities. It is economics applied to decision making. It fills the gap between economic theory and managerial practice.

M/E makes use of analytical tools of economic theory in solving business problems. M/E The application of economic theory and methodology to business administration practice M/E is the integration of economic theory with business practice for the purpose of Facilitating decision making and forward planning by management

NATURE AND CHARACTERISTICS

1.It is micro economic in character.-concentrates only on the study of the firm and not on the working of the economy. 2.It takes the help of macro economics to understand and adjust to the environment. 3.It is normative rather than positive in character-i.e.,-it is prescriptive in nature rather than descriptive 4.It is both conceptual and material. 5.The contents of m/e mainly based on theory of firm 6.M/e useful as it is goal oriented and aims at maximum achievement of objectives.

SIGNIFICANCE OF M/E

Provides a no. of tools / techniques to a manger to become a more competent model builder Provides more concepts for the analysis of business problems-like Demand/ Elasticity of demand/opportunity cost/variable/fixed and other cost Provides answers to the questions like-what should be the product mix/ less costly input mix/level of output/ profit planning/capital budgeting etc.,

SCOPE OF M/E

Whether M/E is normative or positive-/ positive economics- descriptive in character-telling things as they are N/E-prescriptive in character-things ought to be things should be-M/E is normative in characterAreas of study-Demand analysis-forecasting-cost analysis-pricing-profit planning-capital budgetingProfits-Maximization-survival-index of efficiencyOptimization-aims at optimizing given objectiveRelationship with other Disciplines-like Micro/Macro/Mathematics/Accounting

Scope of M/E
Operational Issues Environmental (or) External Issues

Operational Issues :
Theory

of demand and demand forecasting Pricing & competitive strategy Cost analysis Resource allocation Profit analysis Capital / investment analysis Strategic planning vision / mission