Hello everyone, in the previous topic we were talking about the Concept of Object-Oriented Programming in Java. Today we are going to talk about Managerial Economics, its Features, Nature, Scopes, and its Relationship with Other Disciplines.

What is Managerial Economics

Managerial Economics

Managerial economics is the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.

In other words, we can say that Managerial economics helps managers to decide on the planning and control of the benefits. Managerial Economics is synchronized between the planning and control of any institution or firm and it plays a huge role in business decisions.

Features of the Managerial Economics

Following are the features of the Managerial Economics-

• It is based on economic concepts.
• It is an integration of economic theory with business practice.
• It is concerned with finding optimal solutions to the decision-making problems of firms or businesses.
• It is sometimes referred to as business economics.
• It offers powerful tools and techniques required for effective decision-making to firms in areas such as demand, profit, cost, and competition.
• It analyses the problems of the firm from the perspective of the economy as a whole.

Nature of Managerial Economics

The nature of managerial economics is as follow-

1. It analyses towards solving business problems, constitutes the subject-matter of Managerial Economics.
2. It helps in decision-making and forward planning.
3. The problem of choice arises because resources are limited and the firm has to make the most profitable use of these resources.
4. As the future is unpredictable, a business manager’s task is to prepare the best possible plans for the future depending on past experience and future outlook.
5. It assists the managers of a firm in a rational solution of obstacles faced in the firm’s activities.
6. It helps in formulating logical managerial decisions.
7. It lessens the gap between economics in theory and economics in practice.
8. It guides the managers in taking decisions relating to the firm’s customers, competitors, and suppliers as well as relating to the internal functioning of a firm.
9. It makes use of statistical and analytical tools to assess economic theories in solving practical business problems.
10. It helps in the enhancement of analytical skills, assists in rational configuration as well as solution of problems.
11. It can also be used to help in the decision-making process of non-profit organizations e.g- hospitals, educational institutions, etc.
12. It enables optimum utilization of scarce resources in such organizations as well as helps in achieving the goals in the most efficient manner.

Scope of Managerial Economics

Managerial economics is concerned with the application of economic concepts and analysis to the problem of formulating rational managerial decisions. There are four groups of problems in both decision-making and forward planning. They are-

Resource Allocation

Scarce resources have to be used with utmost efficiency to get optimal results. These include production programming, the problem of transportation, etc.

Inventory and Queuing Problems

Inventory problems involve decisions about the holding of optimal levels of stocks of raw materials and finished goods over a period. These decisions are taken by considering demand and supply conditions. Queuing problems involve decisions about the installation of additional machines or hiring of extra labor in order to balance the business lost by not undertaking these activities.

Pricing Problems

Fixing prices for the products of the firm is an important part of the decision-making process. Pricing problems involve decisions regarding various methods of pricing to be adopted.

Investment Problems

Forward planning involves investment problems. These are problems of allocating scarce resources over time. For example, investing in new plants, how much to invest, sources of funds, etc

Relationship of Managerial Economics with Other Disciplines

By its nature, managerial economics borrows heavily from several other disciplines. The nature and scope of managerial economics can also be understood well by studying its relationship with other disciplines. We can say that Managerial economics draws heavily from the following disciplines-

Economics and Econometrics

Managerial economics is an application of economic theory into business practices or management. Managerial economics uses both micro and macro economics-their concepts, theories, tools, and techniques. In managerial economics, we also use various types of models such as schematic models (diagrams) analog models (flow charts) and mathematical models, and stochastic models. The roots of most of these models lie in economic logic. Economics also tells us the art of constructing models. Empirically estimated functions, which are being used in managerial economics, are basically econometric estimates.

Mathematics and Statistics

Mathematical tools are widely used in model building for exploring the relationship between related economic variables. Most of the decision models are constructed in terms of mathematical symbols. Geometry, trigonometry, and algebra are different branches of mathematics and they provide various tools & concepts such as logarithms, exponentials, vectors, determinants, matrix algebra, and calculus, differentials, and integral.

Similarly, statistical tools are a great aid in business decision-making. Statistical tools such as the theory of probability, forecasting techniques, index numbers, and regression analysis are used in predicting the future course of economic events and the probable outcomes of business decisions. Statistical techniques are used in collecting, processing & analyzing business data, and in testing the validity of economic laws.

Operational Research (OR)

Operational Research is used for solving the problems of allocation, transportation, inventory building, waiting line, etc. Linear programming and goal programming models are very useful for managerial decisions. These are widely used OR techniques. In fact, OR is an inter-disciplinary solution finding technique. It combines economics, mathematics, and statistics to build models for solving specific problems and to find a quantitative solution there by.

Accountancy

It provides business data support for decision-making. The data on costs, revenues, inventories, receivables, and profits are provided by the accountancy. Cost accounting, ratio analysis, break-even analysis is the subject matters of accountancy and they are of great help to managers in decision-making.

Psychology and Organization Behavior (OB)

Managerial economics analyses the individual behavior of a buyer and seller [microeconomic units]. Psychology is helpful in understanding the behavioral aspects like attitude and motivation of individual decision-making units. Psychological Economics is-a new discipline of recent origin analyses the buyer’s behavior useful for marketing management. Behavioral models of firms have also been developed based on organization psychology and micro-economics to explain the economic behavior of a firm.

Management Theory

Management theories bring out the behavior of the firm in its efforts to achieve some predetermined objectives. With changes in environment and circumstances, both the objectives of the firm and managerial behavior change. Therefore sufficient knowledge of management theory is essential to the decision-makers. The basic knowledge of the principles of personnel, marketing, financial and production management is required for accomplishing the task.

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