Managerial Economics Essay

1.1.1. Introduction

Before learning about managerial economics, we shall first explore the basics of economics and understand its significance.

The term economics is derived from the Greek words: (oikos, “house”) and (nomos, “custom” or “law”), hence “rules of the house (hold for good management)” combined together, it means household management.

The ultimate goal of economics is to improve the living conditions of people in their everyday life.

Meaning and Definition of Economics

There are different definitions of economics given by famous economists. Some of them are listed below as follows:

Adam Smith, an 18th-century philosopher and free-market economist has given the wealth definition of economics as, “Economics is the science of

Features of Managerial Economics

i. Managerial economics studies how efficiently the organisational resources can be allocated to reach the objectives. ii. Managerial economics is both micro as well as macro: Managerial economics is more of application of microeconomic concepts as it deals with how a producer decides on cost output relation, pricing strategy according to demand, etc., but then no businessman runs business in isolation. Macroeconomic environment also affects the business. Therefore, it draws extensively form microeconomics as well. For e.g.: A producer not only needs to know the demand for its product in deciding the price but also the competition it faces from the international brands available in markets, the economic condition, etc.

iii. Managerial economics is both positive as well as normative in nature: Positive science tells us ‘what is’, all pure sciences are positive sciences. Normative science tells us ‘what ought to be’, it has value judgement as it tells us what should be. Managerial economics is both, it tells the facts and at the same time, it also tells what should be. A manager cannot always go with the facts but make decision with value judgements

It is concerned with solving all the problems pertaining to business.

Managerial economics is an applied economics that is why it covers all the economic concepts, theories, tools, and analysis which are related to business environment. The scope of managerial economics covers all the concepts of microeconomics-

1.1.4.(i). Demand Analysis and Forecasting

Demand analysis covers how consumer demands a commodity, how much the quantity demand may change due to various reasons? What are the different methods to forecast the demand? The knowledge on demand analysis and demand forecasting is covered under the scope of managerial economics.

This knowledge helps not only in making choice on which product to produce, but also how much to produce and even how to price it according to the price elasticity of demand.

1.1.4.(ii). Cost and Production Analysis

Production concept in economics explains the relationship between cost and output. This is done by explaining how cost can be minimised, what is the optimum output required, and how all the factors of production can be fully utilised. This is covered in the scope of managerial economics as the manager needs to have knowledge about the short run and long run cost output relation to decide the size of the firm and how much investment is required for the