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a) What is Managerial economics

b) How the Knowledge of ME helps a manger in decision making


a) Managerial economics is a study of application of managerial skills in

economics, more over it help to find problems or obstacles in the business
and provide solution for those problems. problems may be relating to costs,
prices, forecasting the future market, human resource management, profits

Managerial economics (also called business economics), is a branch of

economics that applies microeconomic analysis to specific business
decisions. As such, it bridges economic theory and economics in practice. It
draws heavily from quantitative techniques such as regression analysis and
correlation, Lagrangian calculus (linear). If there is a unifying theme that runs
through most of managerial economics it is the attempt to optimize business
decisions given the firm's objectives and given constraints imposed by
scarcity, for example through the use of operations research and

b) Decisions made by managers are crucial to the success or failure of a

business. Roles played by business managers are becoming increasingly
more challenging as complexity in the business world grows. Business
decisions are increasingly dependent on constraints imposed from outside
the economy in which a particular business is based—both in terms of
production of goods as well as the markets for the goods produced. The
impact of rapid technological change on innovation in products and
processes, as well as in marketing and sales techniques, figures prominently
among the factors contributing to the increasing complexity of the business
environment. Moreover, because of increased globalization of the
marketplace, there is more volatility in both input and product prices. The
continuous changes in the economic and business environment make it ever
more difficult to accurately evaluate the outcome of a business decision. In
such a changing environment, sound economic analysis becomes all the
more important as a basis of decision making. Managerial economics is a
discipline that is designed to provide a solid foundation of economic
understanding in order for business managers to make well-informed and
well-analyzed managerial decisions.

Managerial economics applies economic theories, tools, and techniques to

administrative and business decision-making. The first step in the decision-
making process is to collect relevant economic data carefully and to organize
the economic information contained in data collected in such a way as to
establish a clear basis for managerial decisions. The goals of the particular
business organization must then be clearly spelled out. Based on these
stated goals, suitable managerial objectives are formulated. The issue of
central concern in the decision-making process is that the desired objectives
be reached in the best possible manner. The term "best" in the decision-
making context primarily refers to achieving the goals in the most efficient
manner, with the minimum use of available resources—implying there be no
waste of resources. Managerial economics helps the manager to make good
decisions by providing information on waste associated with a proposed