THE SCOPE OF MANAGERIAL

ECONOMICS

Managerial Economics – refers to the

application of economic theory and
the tools of analysis of decision
science to examine how an
organization can achieve its aims or
objectives most efficiently.
THE NATURE OF MANAGERIAL
ECONOMICS
Managerial decision problems

Economic theory: Decision sciences:

Microeconomics, Mathematical economics,
macroeconomics economics

MANAGERIAL ECONOMICS:
Application of economic theory and
decision science tools to solve
managerial decision problems

OPTIMAL SOLUTION
TO
MANAGERIAL DECISION
PROBLEMS
RELATIONSHIP TO
ECONOMIC THEORY
The organization can solve its
management decision problems by the
application of economic theory and the
tools of decision science.

• Economic Theory – refers to

microeconomics and macroeconomics.
• Microeconomics – is the study of
the economic behavior of individual
decision making units, such as individual
consumers, resource owners, and
business firms, in a free enterprise
system.
• Macroeconomics – is the study of the
total or aggregate level of output, income,
employment, consumption, investment,
and prices for the economy viewed as a
whole.
 RELATIONSHIP TO DECISION
SCIENCES
Managerial economics as also related
to the decision sciences. These use the
tools of mathematical economics and
econometrics to construct and estimate
decision models aimed at determining the
optimal behavior of the firm.
• Mathematical Economics is used to
formalized the economic models
postulated by economic theory.

• Econometrics then applies statistical

tools to real-world data to estimate the
models postulated by economic theory
and for forecasting.