Section c

Que-3
Managerial economics is a branch of economics involving the application of
economic methods in the organizational decision-making process.[1] Economics is
the study of the production, distribution, and consumption of goods and services.
Managerial economics involves the use of economic theories and principles to
make decisions regarding the allocation of scarce resources

Economic Theories relevant to Managerial Economics[edit]

Microeconomics is the dominant focus behind managerial economics, some of
the key aspects include:

 Supply and Demand

Supply and Demand Relationship

The law of supply and demand describes the relationship between producers and
consumers of a product.[14] The law suggests that price set by the producer and
quantity demanded by a consumer are inversely proportional, meaning an
increase in the price set is met by a reduction in demand by the consumer.
Production theory
Production theory describes the quantity of a good a business chooses to
produce due to multiple factors.[15] These factors include; raw material inputs,
labor, machinery costs, capital, etc.[15] The production theory states that a
business will strive to employ the cheapest combination of inputs to produce the
quantity demanded. The production function can be described by the function 
  where Q denotes production from a firm, L is the variable inputs,
and K is the fixed inputs.[16]

 Opportunity cost
The opportunity cost details the costs and benefits of each action the business is
considering pursuing, and the cost of choosing one activity over another.[17] The
decision-maker is then in the position to choose the action with the highest
payoff.

 Theory of Exchange or Price Theory

 Theory of Capital and Investment Decisions
 Elasticity of demand

Characteristics of Managerial
Economics
You need to know about the various characteristics of managerial
economics to get more knowledge about it. Let’s read about the
nature of managerial economics.

1. Art and Science

Management theory requires a lot of critical and logical thinking and

analytical skills to make decisions or solve problems. Many
economists also find it a source of research, saying it includes
applying different economic concepts, techniques, and methods to
solve business problems.
2. Microeconomics

Managers typically deal with the problems relevant to a single entity

rather than the economy as a whole. It is therefore considered an
integral part of microeconomics.

3. Uses of Macro Economics

A corporation works in an external world, i.e., it serves the consumer,

which is an important part of the economy. For this purpose,
managers must evaluate the various macroeconomic factors such as
market dynamics, economic changes, government policies, etc., and
their effect on the company.

4. Multidisciplinary

Managerial economics uses many tools and principles that belong to

different disciplines, such as accounting, finance, statistics,
mathematics, production, operational research, human resources,
marketing, etc.

5. Prescriptive or Normative Discipline

By introducing corrective steps managerial economics aims at

achieving the objective and solves specific issues or problems.
6. Management Oriented

This serves as an instrument in managers’ hands to deal effectively

with business-related problems and uncertainties. This also allows for
setting priorities, formulating policies, and making successful
decisions.

7. Pragmatic

The solution to day-to-day business challenges is realistic and

rational.

Different individuals take different views of the principles of managerial

economics. Others may concentrate more on customer service and
prioritize efficient production.

Que-4