# Managerial economics

Managerial economics
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Managerial economics as defined by Edwin Mansfield is "concerned with application of economic concepts and economic analysis to the problems of formulating rational managerial decision.” It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units. As such, it bridges economic theory and economics in practice.[1] It draws heavily from quantitative techniques such as regression analysis and correlation, calculus.[2] If there is a unifying theme that runs through most of managerial economics it is the attempt to optimize business decisions given the firm's objectives and given constraints imposed by scarcity, for example through the use of operations research, mathematical programming, and other computational methods.[3][4]

Managerial decision areas include:

• assessment of investible funds
• choice of product
• determining optimum output
• determining price of product
• determining input-combination and technology
• sales promotion.

Almost any business decision can be analyzed with managerial economics techniques, but it is most commonly applied to:

At universities, the subject is taught primarily to advanced undergraduates and graduate business schools. It is approached as an integration subject. That is, it integrates many concepts from a wide variety of prerequisite courses. In many countries it is possible to read for a degree in Business Economics which often covers managerial economics, financial economics, game theory, business forecasting and industrial economics.

## Scope of Managerial economics

Managerial economics to a certain degree is prescriptive in nature as it suggests course of action to a managerial problem. Problems can be related to various departments in a firm like production, finance, accounts, sales, marketing etc.

1. Demand decision
2. Production decision

## Demand decision

Demand refers to the willingness to buy a commodity. Demand, here, defines the market size for a commodity i.e. who will buy the commodity. Analysis the demand is important for a firm as it's revenue, profits, income of the employees depends on it. [6]

## Production decision

A firm needs to answer 3 basic questions - what to produce, how to produce and how much to produce and for whom to produce.

What to produce?

A firm will produce according to its perception of the customer demand. It can either produce consumer goods like food, clothing etc. (which are for consumption purpose) or it can produce capital goods like machinery etc. (which are for investment purposes).

How to produce?

Goods can be produced by certain techniques. Firms have the option of producing goods by labour intensive technique and capital intensive technique. Labour intensive technique is the one in which manual labour is used to produce goods. Capital intensive technique is the one in which machinery like forklift, assembly belts etc. are used to produce goods.

How much to produce?

A firm has to decide its production capacity and also how much of their good a consumer needs and produce accordingly.

For whom to produce? A firm has to decide its target population (i.e. to whom they will serve products and/or services). Example, it will not be viable to produce luxurious goods or middle income or low income group if they can't afford it and produce basic necessity goods for rich class if they don't need it. Therefore, a firm needs to match its produce according to the target population it is serving. [7]

## Finding related topics

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## Notes

1. ^ • William J. Baumol (1961). "What Can Economic Theory Contribute to Managerial Economics?," American Economic Review, 51(2), pp. 142-46. Abstract.
• Ivan Png and Dale Lehman (2007, 3rd ed.). Managerial Economics. Wiley. Description and chapter-preview links.
• M. L. Trivedi (2002). Managerial Economics: Theory & Applications, 2nd ed., Tata McGraw-Hill. Chapter-preview links.
2. ^ NA (2009). "managerial economics," Encyclopedia Britannica. Cached online entry.
3. ^ For a journal on the last subject, see Computational Economics, including an Aims & Scope link.
4. ^ • Keisuke Hirano (2008). "decision theory in econometrics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
• Vassilis A. Hajivassiliou (2008). "computational methods in econometrics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
5. ^ • Trefor Jones (2004). Business Economics and Managerial Decision Making, Wiley. Description and chapter-preview links.
• Nick Wilkinson (2005). Managerial Economics: A Problem-Solving Approach, Cambridge University Press. Description and preview.
• Maria Moschandreas (2000). Business Economics, 2nd Edition, Thompson Learning. Description and chapter-preview links.
6. ^ Prof. M.S. BHAT, and A.V. RAU.Managerial economics and financial analysis.Hyderabad.ISBN: 978-81-7800-153-1

## References

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