Managerial economics is a stream of management studies which

emphasizes solving business problems and decision-making by

applying the theories and principles of microeconomics and
macroeconomics. It is a specialized stream dealing with the
organization’s internal issues by using various economic theories.

Managerial Economics can be defined

as amalgamation of economic theory
with business practices so as to ease
decision-making and future planning
by management. Managerial
Economics assists the managers of a
firm in a rational solution of obstacles
faced in the firm’s activities. It makes
use of economic theory and concepts.
It helps in formulating logical
managerial decisions. The key of
Managerial Economics is the micro-
economic theory of the firm. It lessens
the gap between economics in theory
and economics in practice. Managerial
Economics is a science dealing with
effective use of scarce resources. It guides the managers in taking decisions relating to the firm’s
customers, competitors, suppliers as well as relating to the internal functioning of a firm. It makes
use of statistical and analytical tools to assess economic theories in solving practical business
problems. Study of Managerial Economics helps in enhancement of analytical skills, assists in
rational configuration as well as solution of problems. While microeconomics is the study of
decisions made regarding the allocation of resources and prices of goods and services,
macroeconomics is the field of economics that studies the behavior of the economy as a whole (i.e.
entire industries and economies). Managerial Economics applies micro-economic tools to make
business decisions. It deals with a firm. The use of Managerial Economics is not limited to profit-
making firms and organizations. But it can also be used to help in decision-making process of non-
profit organizations (hospitals, educational institutions, etc.). It enables optimum utilization of scarce
resources in such organizations as well as helps in achieving the goals in most efficient manner.
Managerial Economics is of great help in price analysis, production analysis, capital budgeting, risk
analysis and determination of demand. Managerial economics uses both Economic theory as well as
Econometrics for rational managerial decision making. Econometrics is defined as use of statistical
tools for assessing economic theories by empirically measuring relationship between economic
variables. It uses factual data for solution of economic problems. Managerial Economics is associated
with the economic theory which constitutes “Theory of Firm”. Theory of firm states that the primary
aim of the firm is to maximize wealth. Decision making in managerial economics generally involves
establishment of firm’s objectives, identification of problems involved in achievement of those
objectives, development of various alternative solutions, and selection of best alternative and finally
implementation of the decision. The following figure tells the primary ways in which Managerial
Economics correlates to managerial decision-making.

Nature of managerial economics

You need to know about its various characteristics to get more information about
managerial economics. In the mentioned below points let’s read about the nature of this
concept:

 Art and Science: Management theory requires a lot of critical and logical
thinking and analytical skills to make decisions or solve problems. Many
economists also find it a source of research, saying it includes applying different
economic concepts, techniques and methods to solve business problems.
 Micro Economics: In managerial economics, managers typically deal with the
problems relevant to a single entity rather than the economy as a whole. It is
therefore considered an integral part of microeconomics.
 Uses Macro Economics: A corporation works in an external world, i.e. it serves
the consumer, which is an important part of the economy.
 For this purpose, it is important that managers evaluate the various
macroeconomic factors such as market dynamics, economic changes,
government policies, etc., and their effect on the company.
 Multidisciplinary: It uses many tools and principles that belong to different
disciplines, such as accounting, finance, statistics, mathematics, production,
operational research, human resources, marketing, etc.
 Prescriptive/Normative Discipline: By introducing corrective steps it aims at
achieving the objective and solves specific issues or problems.
 Management Oriented: This serves as an instrument in managers’ hands to
deal effectively with business-related problems and uncertainties. This also
allows for setting priorities, formulating policies, and taking successful decision-
making.
 Pragmatic: The solution to day-to-day business challenges is realistic and
rational.
Both managers take a different view of the principle of managerial economics. Others
may concentrate more on customer service while others may make efficient production
a priority.

The concepts of Managerial Economics

Liberal Managerialism

A market is a democratic space where people make their choices and decisions in a
liberal way. The organization and the managers must function according to the demand
of the customers and market trends; otherwise, this can lead to business failures.
Normative managerialism

The managerial economics normative view states that administrative decisions are
based on experiences and practices of real life. They have a systematic method for the
study of demand, forecasting, cost control, product design and promotion, recruitment,
etc.

Radical Managership

Managers have to have a creative approach to business concerns, i.e. they have to
make decisions to improve the current situation or circumstance. We concentrate more
on the need and satisfaction of the consumer rather than just the maximization of
income.

Managerial economic values

The excellent macroeconomist N. Gregory Mankiw has given ten principles to explain
the significance of business operations in managerial economics

Principles of Managerial Economics

Principles of How People Decide

Let us go through the following principles to understand how decision-making takes

place in real life:

 Humans face tradeoffs: To make decisions, people have to make choices on

whether to choose from the different options available.
 Price of Opportunity: Each decision involves a cost of opportunity which is the
cost of those options that we let go of while choosing the most appropriate one.
 Feel fair about the margin: People typically think about the margin or income
they receive before investing in a specific project or individual with their money or
resources.
 People respond to stimulus: Decisions to be made highly depend on incentives
related to a product, service or activity. Negative incentives discourage people,
whilst positive incentives encourage people.

Principles of How People Interact

Communication and market impact business transactions. Let us take a look at the
following related principles to justify the statement:

Trade Could Better Anyone: The theory states that trade is a way for people to share.
Everyone gets an opportunity to offer those good products or services they make. And
buy those products or services that other people are good at manufacturing.
Markets usually represent a good way to organize economic activity

Markets often serve as a means of customer and product interaction. Consumers

express their desires and expectations (demands) while producers determine whether
or not to manufacture necessary products or services.

Governments may often boost the performance of the market

During the time of adverse market conditions, or for the benefit of society, the
government intervenes in business operations. Another such example is when the
government agrees on minimum wages for the benefit of workers.

Principles on How Economy Works

The following theory outlines the economic role of an organization’s functioning:

The standard of living of a country depends on its capacity to generate goods and
services

The companies must be productive enough to produce products and services for the
development of a country’s economy. Ultimately it meets the demand of the customer
and enhances GDP to increase the standard of living in the country.

Prices increase when the government’s printing lots of money.

If surplus money is available with citizens, their capacity to spend increases, eventually
leading to a rise in demand. Inflation takes place when the manufacturers are unable to
satisfy market demand.

Society faces a short-term correlation between unemployment and inflation

The government introduces numerous economic policies to reduce unemployment.

Such policies target in the short term, to improve the economy and what kind of practice
contributes to inflation.

Scope of Managerial Economics

Managerial economics is commonly used to deal with various business problems within
organizations. Both micro and macroeconomics have an equal effect on the
organization and its working. The points which follow illustrate its significance:

Micro-economy Applied to operational matters

The various theories or principles of microeconomics used to solve the internal

problems of the organization arising in the course of business operations are as follows:
  Demand Theory: Demand Theory emphasizes the behavior of the consumer
towards a product or service. This takes into account the customers’ desires,
expectations, preferences, and conditions to enhance the manufacturing
process.
 Decisions on Production and Production Theory: This theory is primarily
concerned with the volume of production, process, capital and labor, costs
involved, etc. It aims to optimize production to meet customer demand.
 Market Structure Pricing Theory and Analysis: It focuses on assessing a
product’s price taking into account the competition, market dynamics, production
costs, optimizing sales volume, etc.
 exam and management of profit: the companies are operating for assets
hence they always aim to maximize profit. It also depends on demand from the
market, input costs, level of competition, etc.
 Decisions on capital and investment theory: Capital is the most important
business element. This philosophy takes priority over the proper distribution of
the resources of the company and investments in productive programs or
initiatives to boost operational performance.

Macro-Economics Applied to Business Environment

Any organization is greatly affected by the environment in which it operates. The

business climate can be defined as:

 Economic environment: A country’s economic conditions, GDP, government

policies, etc. have an indirect effect on the company and its operations.
 Social environment: The society in which the organization, like employment
conditions, trade unions, consumer cooperatives, etc., functions also affects it.
 Political environment: a country’s political system, whether authoritarian or
democratic; political stability; and attitude towards the private sector, impact the
growth and development of the organization.
Management economics is an important method for assessing the company’s priorities
and objectives, the organization’s current role, and what the management can do to fill
the void between the two.

As you now know the definition of managerial economics and what is it, we have listed
down the best options you can pursue in this field.

 Banking Sector
 Government Sector
 Research and Development
 Teaching
 Higher Studies
 Professional Economist
 Financial Risk Analyst
 Data Analyst (Banking)
  Financial Planner (Banking)
 Financial Controller/Financial Economist
 Equity Analyst
 Cost Accountant
 Economic Researcher
 Business Economist
 Agricultural Economist
 Investment Analyst
 Actuary
Banking sector job profiles are financial analysts, consultants, financial advisers,
investment bankers, and being an environmental policymaker, development officer, or
part of Research and Development you can also work for the government. If you want to
be a lecturer or become a senior economics teacher in private schools, apply for the
NET / CTET exam in the field of education. Job for newspapers, and become an
economic or editorial journalist.

 Business Economist: They deal with various sectors and companies and their
main role is to serve as an intermediary between the corporate and the outside
world.
 Asset Manager: They deal with different sectors and businesses and their main
role is to act as an intermediary between the corporate and the outside world.
 Credit and risk manager: We analyze the company’s financial details and
calculate the associated default risk to help both the lender and the buyer.
 Market Analyst: A Market Analyst analyses the market so that their employers
can make a better decision with respect to product launching or rendering
services.
 Operations Manager: From output to review of statistics to educating new staff,
an Operations Manager manages all day-to-day activities in the company and
needs to make sure that the organization runs at an optimal level.
 Teaching: After completing an M.A in Economics with a mark of at least 55
percent an applicant can either seek a Ph.D. at any college or appear for the
National Eligibility exam of the UGC currently being administered by the NTA.
 Equity Analyst: An equity analyst extracts equity information for investment
purposes and explores stock market insights as to where to invest or whether to
proceed or sell on the market.
 Economic services of India: You will complete M.Sc. And MA. in economics
with marks of at least 55 percent before appearing in the Indian Economic
Service Exam. The age range is from 21-30 years. The test is administered by
UPSC.
 Public sector Banking Services: Reserve Bank of India also recruits banking-
sector economists through their own various recruitment exams. The age limit is
21-28 years.
 Private and foreign banks: A holder of an Economics degree can try for both
private and foreign banks. The Banking job categories are branch managers,
clerks, economic analysts, planning and development officers, etc.
  Agencies Worldwide: Experienced and famous economists in a well-known
international organization such as the World Bank and the International Labor
Organisation(ILO) can get employment opportunities.
 Work as an advisor: Graduates in Economics can work as an economic
consultant independently. In the case of various scientific research and
consulting in the private sector, companies can ensure optimal job opportunities.
 Entrepreneurship: Economists should have a profound understanding of the
market. They will easily understand industry dynamics and competitive business
sectors. Then they will soon be able to achieve exponential growth by creating
their own business. So, this will generate a huge number of work opportunities.
It’ll also help to reduce the country’s unemployment problem.

Final Thoughts 
Managerial Economists are the need of every business. They look for talent who can
help manage their money and investments, and help their company grow in the market.
These individuals are highly sought after for their skills to analyse market trends and
practices. 

In terms of scope, Managerial economics leads to a well-respected and high paying job
within the corporate environment. Individuals who are seeking this profile need to build
their skills not only in economic theories, but also in the world of Arts and Sciences for
logical and creative thinking, and management operations. If you are determined to
learn these skills, then the road ahead will be much simpler for you. 

Nature of Managerial Economics

Managers study managerial economics because it gives them insight to reign the functioning of the
organization. If manager uses the principles applicable to economic behaviour in a reasonably, then it will
result in smooth functioning of the organisation.

Managerial Economics is a Science

Managerial Economics is an essential scholastic field. It can be compared to science in a sense that it
fulfils the criteria of being a science in following sense:

 Science is a Systematic body of Knowledge. It is based on the methodical observation.

Managerial economics is also a science of making decisions with regard to scarce resources with
alternative applications. It is a body of knowledge that determines or observes the internal and
external environment for decision making.
 In science any conclusion is arrived at after continuous experimentation. In Managerial
economics also policies are made after persistent testing and trailing. Though economic
environment consists of human variable, which is unpredictable, thus the policies made are not
rigid. Managerial economist takes decisions by utilizing his valuable past experience and
observations.
 Science principles are universally applicable. Similarly policies of Managerial economics are also
universally applicable partially if not fully. The policies need to be changed from time to time
 depending on the situation and attitude of individuals to those particular situations. Policies are
applicable universally but modifications are required periodically.

Managerial Economics requires Art

Managerial economist is required to have an art of utilising his capability, knowledge and understanding
to achieve the organizational objective. Managerial economist should have an art to put in practice his
theoretical knowledge regarding elements of economic environment.

Managerial Economics for administration of organization

Managerial economics helps the management in decision making. These decisions are based on the
economic rationale and are valid in the existing economic environment.

Managerial economics is helpful in optimum resource allocation

The resources are scarce with alternative uses. Managers need to use these limited resources optimally.
Each resource has several uses. It is manager who decides with his knowledge of economics that which
one is the preeminent use of the resource.

Managerial Economics has components of micro economics

Managers study and manage the internal environment of the organization and work for the profitable and
long-term functioning of the organization. This aspect refers to the micro economics study. The
managerial economics deals with the problems faced by the individual organization such as main
objective of the organization, demand for its product, price and output determination of the organization,
available substitute and complimentary goods, supply of inputs and raw material, target or prospective
consumers of its products etc.

Managerial Economics has components of macro economics

None of the organization works in isolation. They are affected by the external environment of the
economy in which it operates such as government policies, general price level, income and employment
levels in the economy, stage of business cycle in which economy is operating, exchange rate, balance of
payment, general expenditure, saving and investment patterns of the consumers, market conditions etc.
These aspects are related to macro economics.

Managerial Economics is dynamic in nature

Managerial Economics deals with human-beings (i.e. human resource, consumers, producers etc.). The
nature and attitude differs from person to person. Thus to cope up with dynamism and vitality managerial
economics also changes itself over a period of time.

Managerial Economics and Micro

Economics
Managerial Economics is basically a blend of Economics and Management. Two branches of economics
i.e. micro economics and macro economics are the major contributors to managerial economics.
Micro Economics is the study of the behaviour of individual consumers and firms whereas
microeconomics is the study of economy as a whole.

Managerial Economics and Micro Economics

All the firms operating in the market have to take under consideration the constituent of the economic
environment for its proper functioning. This economic environment is nothing but the Micro economics
elements.

Micro Economics is a broader concept as compare to Managerial Economics. Micro Economics

forms the foundation of managerial economics. Almost all the concepts of Managerial Economics are
the perceptions of Micro Economics concepts.

Managerial economics can be perceived as an applied Micro Economics. Demand Analysis and
Forecasting, Theory of Price, Theory of Revenue and Cost, Theory of Supply and Production are major
bare bones of Micro Economics that underpins the Managerial Economics. Managerial Economics applies
the theories of Micro Economics to resolve the issues of the organization and for decision making.

All Managers want to carry out their function of decision making with maximum efficiency. Their business
planning can be effectively planned and performed with comprehensive knowledge and understanding of
micro economic concept and its applications. Optimum decision making to achieve the objective of the
organisation i.e. for profit maximizing or for cost minimizing, is possible with proper compliance of micro
economic know how, regardless of the technological constraints and given market conditions. Micro
Economic Analysis is important as it is applied to day to day dilemma and concerns.

The reliance of Managerial Economics on Micro Economics is made clearer in the points below:

 If a manager wants to increase the price of the product due to increase in cost of production, he
will analyze the price elasticity of demand for that product so that price rise is not followed by
substantial fall in the demand of the product. It is the application of demand analysis to the real
world situation.
 For fixing the price of the products managers applies the pricing theories, cost and revenue
theories of micro economics.
 Decisions regarding production and supply of the product in the market, knowledge of availability
of fixed and variable factors of production, state of technology to be used and availability of raw-
material are essential. This can be determined with the knowledge of theory of production.
 Determination of price and output is possible with the acquaintance of market structures and
approaches pertinent for determination of price and output in the given market setup.
 Managerial economics utilizes statistical methods such as game theory, linear programming etc
for application of Economic Theory in Decision making.
 One of the responsibilities of Manager is to workout budgets for different departments of the
organization which is learned from Capital Budgeting and Capital Rationing.
 Cost and benefit analysis helps the manager in decision making.
 Study of welfare economics helps Manager in taking care of social responsibilities of the
organization.
 Microeconomics is the study that deals with partial equilibrium analysis which is useful for the
manager in deciding equilibrium for his organization.
 Managerial Economics also uses tools of Mathematical Economics and econometrics such as
regression analysis, correlation analysis etc.
 Theory of firm, an important element of microeconomics, is one of the most significant element of
Managerial Economics.
