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Concept
Managerial economics
Summary
Managerial economics is a branch of economics involving the application of economic methods in the organizational decision-making process. 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.
It guides managers in making decisions relating to the company's customers, competitors, suppliers, and internal operations.
Managers use economic frameworks in order to optimize profits, resource allocation and the overall output of the firm, whilst improving efficiency and minimising unproductive activities. These frameworks assist organisations to make rational, progressive decisions, by analysing practical problems at both micro and macroeconomic levels. Managerial decisions involve forecasting (making decisions about the future), which involve levels of risk and uncertainty. However, the assistance of managerial economic techniques aid in informing managers in these decisions.
Managerial economists define managerial economics in several ways:
- It is the application of economic theory and methodology in business management practice.
- Focus on business efficiency.
- Defined as "combining economic theory with business practice to facilitate management's decision-making and forward-looking planning."
- Includes the use of an economic mindset to analyze business situations.
- Described as "a fundamental discipline aimed at understanding and analyzing business decision problems".
- Is the study of the allocation of available resources by enterprises of other management units in the activities of that unit.
- Deal almost exclusively with those business situations that can be quantified and handled, or at least quantitatively approximated, in a model. The two main purposes of managerial economics are: To optimize decision making when the firm is faced with problems or obstacles, with the consideration and application of macro and microeconomic theories and principles.
Official source
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