SHARDA SCHOOL OF BUSINESS STUDIES

Subject – Economic Analysis for Business

Decisions

Assignment – What is the meaning of

Managerial Economics?Explain its nature.
Submitted by- Submitted to-
Isha Sachan Ms. Apoorva Verma
2023435652 ( SSBS Assistant Prof.)
MBA Sem. 1 (HCHA)
Section C(2023-24)
Introduction to Managerial
Economics

Managerial Economics refers to the firm’s decision-making process. It

could be also interpreted as “Economics of Management” or “Industrial
economics “or “Business economics”.

MANAGEMENT + ECONOMICS = Managerial

Economics
DEFINITION-:

It is a discipline that deals with the application of economic concept,

theories and methodologies to the practical problems of business or firm
in order to formulate rational managerial decision for solving the
problems.
According to E.F. Brigham and J. L. Pappar, Managerial Economics
is “the application of economic theory and methodology to
business administration practice.”

An example of managerial economics is the decision of a manager to

increase the price of the goods being sold. A manager should evaluate
the price elasticity of the product to equate the respective demand of
the product after the price change.
SCOPE –
Risk Analysis and Decision-making under Uncertainty

Market structure and price theory

Market management

Demand analysis and forecasting

Cost and production analysis

Pricing startegy and Revenue management

Nature of Managerial Economics -

 Let’s know about the various characteristics of managerial
economics to get more knowledge about it. Let’s read about
the nature of managerial economics.

Pragmatic and realistic Goal oriented

Prescriptive Art and science

/Normative Multi -disciplinary

Management
Oriented
Microecono - mics

1)Prescriptive and Normative nature- Positive economics is

descriptive in nature. It is used to describe economic activities as they
are.

Normative statements:

• A normative statement usually includes or implies the words

‘ought’ or ‘should’. They reflect people’s moral attitudes and are
expressions of what a team of people ought to do.

• . Such statement is based on value judgments and express views of

what is ‘good’ or ‘bad’, ‘right’ or ‘wrong’.
 • One problem with normative statements is that they cannot to verify
by looking at the facts, because they mostly deal with the future.
Disagreements about such statements are usually settled by voting on
them.
Prescriptive actions:
• Prescriptive action is goal oriented.

• Given a problem and the objectives of the firm, it suggests the course
of action from the available alternatives for optimal solution.

• It also explains whether the concept can be applied in a given context

on not. For instance, the fact that variable costs are marginal costs can
be used to judge the feasibility of an export order.

2) Pragmatic and Realistic- Management economics is pragmatic in

nature. The principles of managerial economics are made use of found
the optimal solution to the problem faced by the manager in due course
of business which may be related to the choice and allocation of the

resources.

Managerial economics is a practical approach—it applies economic

principles in decision-making and problem-solving.

3)Microeconomics- It solves microeconomic problems faced

by a particular firm—does not focus on the entire economy. It is
concerned with finding the solutions for different managerial problems
of a particular firm. Thus, it is closer to 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.

4)Multi-disciplinary- 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. The contents, tools and techniques of managerial
economics are drawn from different subjects such as economics,
management, mathematics, statistics, accountancy, psychology,
organizational behaviour, sociology and etc.

5) Goal oriented - It educates leaders and managers on how to make

crucial decisions in critical situation. The aim of managerial economics
is to help managers reach their organizational goals. Economic
principles guide decision-making to align with objectives like profit, cost,
or sales. The discipline helps select options that align with the
organization's goals using tools and frameworks.

6)Art and Science- If we will study Managerial Economics as a

science, we can come to this conclusion that it establishes a
relationship between cause and effect by collecting, classifying and
analysing the facts on the basis of certain principles.
For example:

Its co-ordinates production and distribution by analysing the internal

and external factors concerning the firm. Such analysis is based on
certain principles of economics. Accounting and statistics help in
bringing down the cost of production.

Managerial Economics thus tries to find out solutions to various

problems. “Maximisation of profits at minimum of costs.” Thus,
Managerial Economics is a Science as well as an Art.

Various economic principles and theories are applied towards solving

the economic problems. For example—Demand analysis, cost analysis,
profits analysis is used in solving business problems.

Importance
Following are areas where managerial economics plays a key role:

 The companies use managerial economics for forecasting demand.

Based on demand projections, long-term business policies are
formulated.
  The external environment poses various challenges and
uncertainties. This discipline creates an estimate of those threats;
as a result, firms can prepare themselves for damage limitation
strategies.
 Inventory management is crucial for business. By employing
demand analysis, firms can plan inventory beforehand.
 It facilitates the determination of the future cost of the business.
Scarce resources can be utilized efficiently; this way total cost of
production and sales can be mitigated.
 This study aids top-level management in making critical capital
management decisions—investing in the right.

Conclusion
In conclusion, managerial economics is a broad and complex field that
blends economic theory and business decision-making. It provides the
tools for managers to make informed decisions by analysing changes in
demand, supply, cost structure, competition, technological innovations,
and another factor. Managerial economics plays a significant role in
business organizations. It is very much effective to the management in
decision making and forward planning in relation to the internal
operations in a business. Hence managerial economics contributes to
the profitable growth of a Business.

Thank you.