MANAGERIAL

ECONOMICS
 SCOPE OF MANAGERIAL
ECONOMICS

From the point of view of a firm, managerial economics, may be defined as

economics applied to “problems of choice” or alternatives and allocation of scarce
resources by the firms. Thus managerial economics is the study of allocation of
resources available to a firm or a unit of management among the activities of that
unit. Managerial economics is concerned with the application of economic
concepts and analysis to the problem of formulating rational managerial decisions.
There are four groups of problem in both decisions-making and forward planning.

 Resource Allocation
 Inventory and Queuing Problem
 Pricing Problem
 Investment Problem
 INTRODUCTION
MANAGERIAL ECONOMICS

Why is managerial economics so valuable to such a diverse group of decision makers? The answer to this
question lies in the meaning of the term managerial economics.
The Manager
A manager is a person who directs resources to achieve a stated goal. This definition includes all
individuals who
(1) direct the efforts of others, including those who delegate tasks within an organization such as a firm,
a family, or a club;
(2) purchase inputs to be used in the production of goods and services such as the output of a firm,
food for the needy, or shelter for the homeless; or
(3) are in charge of making other decisions, such as product price or quality. A manager generally has
responsibility for his or her own actions as well as for the actions of individuals, machines, and other
inputs under the manager’s control. This control may involve responsibilities for the resources of a
multinational corporation or for those of a single household. In each instance, however, a manager
must direct resources and the behavior of individuals for the purpose of accomplishing some task.
While much of this book assumes the manager’s task is to maximize the profits of the firm that
employs the manager, the underlying principles are valid for virtually any decision process.
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Managerial economics has to meet the needs of a management executive in a business organisation. A business
executive is called upon to make a choice in alternative lines of action as a part of the process of decision-making. He is
also required to prepare a plan of action for the future. It should, therefore, be clear that managerial economics, like the
parent discipline of economics has to serve as a science of making a choice. Similarly, like economics, it has to guide a
business executive in making certain predictions. Besides, there are other areas where managerial economics draws heavily
from the science of economics.

 To D.C. Hayue : Managerial Economics is a "fundamental academic subject which seeks to understand and to analyse the
problems of business decision- taking’.
 Savage and Small believe that Managerial Economics concerns efficient direction of a business organisation so as "to
make a productive enterprise out of human and material resources.
 To Brigham and Pappas, Managerial Economics is "the application of theory and methodology to business administration
practice".
 Malcolm McNair and Richard Meriam have defined Business Economics as "consisting of the use of economic modes of
thought to analyse business situations.
 Another important definition which is very often quoted is the one by Milton Spencer and Louis Siegelman. According
to them, "Managerial Economics is the integration of economic theory with business practice for the purpose of
facilitating decision-making and forward planning by management'.
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 CONCLUSION

Thus, all the above definitions seem to suggest the same thing : that Managerial
Economics is a science dealing with the application of the economic theory to
business management.

In other words, Managerial Economics can be viewed to lie between economics on

the one hand and business management on the other. The former consists of a
theory with an accepted methodology and an analytical rigour. The latter, on the
other hand is concerned with the problems of decision-making. As such, Managerial
Economics provides an insight into the application of economics to solving business
problems. It does so by formulating optimal solutions to a wide range of business
problems.

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