Nature of Managerial Economics

Managerial Economics is also known as business economics since its major focus is on business problems, is has a
blend of features on many a business elated discipline apart from economics from which it originates primarily.
Since this is newly formed discipline no uniform pattern is adopted and different authors treat the subject in
different ways.
Thus, the nature of Managerial Economics can be known through its relation with various other disciplines
such as a micro and macro economics, normative and descriptive economics, the theory of decision making,
operation research and statistics. It is said that a successful business economist will try to integrate the concepts
and methods from all the disciplines.
The nature of Managerial Economics is as follows:-
1) Micro-Economic Frame work:- The micro-economic analysis deals with the problem of an individual firm
,industry ,etc… In the case of managerial economics micro economics helps in studying what is going on with in
the firm. The micro economic theory is also known as the price theory. It provides various concepts for the
determination of the price of commodities, services and factors of production.
The chief source of concepts and analytical tool for managerial economics is micro economic theory, some of the
popular micro economic concepts are elasticity of demand, production analysis, cost analysis, opportunity cost,
present value, pricing under various market structures and profit management etc.., It also includes the behavior of
the consumer in his individual capacity. Managerial Economics use some well accepted models in price theory
such as the model for monopoly price , model of price discrimination and behavioral and marginal models
Macro Economics : A successful manager has to acquaint himself with the general business conditions, which
influence supply and price of commodities as well as factors of production. Especially in forecasting demand, the
general economic environment is taken into account,. The other macro variables like income, general price levels,
rate of foreign exchange etc.. influence business so closely.
Hence, the managers has to grasp the various concepts related to them form macro economics also.
2).Managerial Economics is Normative approach ( Normative Vs Descriptive Economics )
Managerial Economics is considered as a part of normative economics. This is because it is prescriptive in nature
rater than descriptive. It is concerned with those decisions which are to be made keeping in view the objectives of
a firm. If profit is taken as the objective of the firm. Managerial economics proved various alternatives to achieve
the desired profit. The descriptive economics only describes relations and situation. It indicates only the possible
consequence based on certain relations but the best choice amongst them is not made. Normative approach of
managerial economic decide the logic which fits into a given purpose.
Integration of Economic Theory and Business practice
Managerial economic prefers the practical approach. It is concerned with the application of economics theories in
the business practices. With the help of economics one can under stand the actual business behavior. Managerial
Economics attempts to estimate and predict the economic quantities and relationships It cannot ignore the
environment within which they operate.