ADMAS UNIVERSITY
FACULTY OF ECONOMICS
MANAGERIAL ECONOMICS
LECTURER: AHMED M. ELMI (ATOSHE)
February 2022
CHAPTER ONE
Introduction To Managerial Economics
After studying this unit, you should be able to understand:
1. The Meaning of Managerial Economics.
2. The Nature and Characteristics of Managerial Economics.
3. The Scope of Managerial Economics.
4. The Relationship of Managerial Economics with other
branches of knowledge
Meaning and Definition of Managerial Economics
• The terms “Managerial Economics” “Business Economics”
and “Economics for Managers "are often synonyms and used
interchangeably in managerial studies.
• Basically, Managerial Economics is an Applied Economics in
the sphere of business management. It is an application of
economic theory and methodology to decision-making
problems faced by the business firms. Thus, it is the economics
and tools of economics to solve the managerial problems of
business organizations.
Some important definitions of Managerial Economics are:
“Managerial Economics is economics applied in decision-making.
It is a special branch of economics bridging the gap between the
economic theory and managerial practice. Its stress is on the use of
the tools of economic analysis in clarifying problems in organizing
and evaluating information and in comparing alternative courses of
action.” W. W. Haynes
“Managerial Economics is the integration of economic
theory with business practice for the purpose of facilitating
decision-making and forward planning by management.”
Spencer & Siegelman
“The purpose of Managerial Economics is to show how
economic analysis can be used in formulating business policies.”
Joel Dean
By analyzing the various definitions of managerial economics
given above, we come to the conclusion that “managerial
economics is the study of economic theories, logic,
concepts and tools of economic analysis that are used in
the process of business decision-making by the business
managers in taking rational, correct and timely decisions.”
Basically, managerial economics concentrates on decision
process, decision models and decision variables. This can
be explained by the following schematic chart:-
Economic theories, Concepts, Business management,
Methodology and Tools Decision Problems,
Managerial Economics
Application of Economics in analyzing and solving Business
problems
Optimum solutions to business problems
Characteristics of Managerial Economics
The main characteristics of managerial economics is shown the
diagram below:
Micro
economic
analysis
Applied/Business Economics
Economics of the firm
Characteristics
of Managerial Acceptance of
Sophisticated
Economics use & utility of
and
macro
developing
economic
discipline
variables
Normative
Emphasis on approach
case study
The nature of Managerial Economics
Science as well as an Art
Because is both knowledge acquiring and knowledge applying
discipline
Managerial Economics is a:-
Positive and Normative science
Positive Science: is a systematic knowledge of a particular subject
wherein we study the cause and effect of an event
Normative Science: studies things as they ought to be. n other
words, it involves value judgment or good and bad aspects of an
event. Therefore, normative science is perspective rather than
Descriptive. In other words, it explains the phenomenon as “What
is, what was and what will be.”
Being of the determinative/perspective nature, the focus is on
what should be or business decisions are based an value
judgment considering the beneficial and harmful aspects of
such decisions
Scope of Managerial Economics
• Managerial economics comprises all those economic
concepts, theories, and tools of analysis which can be
used to analyze the business environment and to find
solutions to practical business problems. In other
words, managerial economics is applied economics.
• The areas of business issues to which economic theories
can be applied may be broadly divided into the
following two categories:
I. Operational or Internal issues; an
II. Environmental or External issues
Relationship of Managerial Economics with Other
Disciplines
Economics &
Econometrics
Managemen Mathematics
t Theory and
Statistics
R/Sh of ME
with Other
Disciplines
Psychology &
Organisation Operational
Behaviour Research
Operational
Research
Self Assessment Questions
1. What does economic theory contribute to Managerial
Economics?
2. What is the contribution of psychology and organization
behavior to Managerial Economics?
3. How is mathematics & statistics and operational research
useful to Managerial Economics?
4. List the important characteristics of Managerial
Economics.
5. Summarize the scope of Managerial Economics as a
learner.
6. Why should you study the Managerial Economics
