• Category
  • >Economics
  • >Financial Analytics

What is Managerial Economics? Definition, Types, Nature, Principles, and Scope

  • Ritesh Pathak
  • Nov 26, 2020
  • Updated on: Nov 21, 2023
What is Managerial Economics? Definition, Types, Nature, Principles, and Scope title banner

Businesses run on various theories that are explained in Economics. Managerial Economics is the stream of management studies that emphasizes solving problems in businesses using the theories in micro and macroeconomics. This branch of economics is used by firms to not only find a solution to problems in daily running but also for long-term planning. We can also say that Managerial economics is a practical application of theories in economics. 

 

“Managerial economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.”

- Edwin Mansfield, Economics Professor, University of Pennsylvania  

 

We should also look here at What is economics? Economics is an inevitable part of any business. All the business assumptions, forecasting, and investments are based on this one single concept. Investopedia explains “Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources.” So, theories in economics are not just some statements written but rather they act as fuel for a firm. In the broader picture, economics also helps nations in policy formation. 

 

So, in this blog, we will discuss the branch of economics that helps businesses to find a solution to almost every problem they may face. We will discuss the definition of managerial economics, its nature, its scope in businesses, and the principles of managerial economics. 

 

Also Read | 5 Key elements of Financial Analysis

 

Definition of Managerial Economics

 

Managerial economics is defined as the branch of economics which deals with the application of various concepts, theories, methodologies of economics to solve practical problems in business management. It is also reckoned as the amalgamation of economic theories and business practices to ease the process of decision making. Managerial economics is also said to cover the gap between the problems of logic and problems of policy. 

 

Managerial economics is used to find a rational solution to problems faced by firms. These problems include issues around demand, cost, production, marketing, and it is used also for future planning. The best thing about managerial economics is that it has a logical solution to almost every problem that may arise during business management and that too by sticking to the microeconomic policies of the firm. 

 

When we talk of managerial economics as a subject, it is a branch of management studies that emphasizes solving business problems using theories of micro and macroeconomics. Spencer and Siegelman have defined the subject as “the integration of economic theory with business practice to facilitate decision making and planning by management.” The study of managerial economics helps the students to enhance their analytical skills, developing a mindset that enables them to find rational solutions.

 

 

Nature of Managerial Economics 

 

We know about managerial economics like what it is and how different people define it. Managerial Economics is an essential scholastic field. It can be termed as a science in the sense that it fulfills the criteria of being a science. 

 

  • We all know science as a systematic body of knowledge and it is based on methodological observations. Similarly, Managerial Economics is also a science of making decisions and finding alternatives, keeping the scarce of resources in mind. 

  • In science, we arrive at any conclusion after continuous experimentation. Similarly, in managerial economics policies are formed after constant testing and trailing. 

  • In science, principles are universally acceptable and in managerial economics, policies are universally applicable at least partially if not fully. 


The image contains a diagram that shows the Nature of Managerial Economics.

Nature of Managerial Economics


 

We will now look at the characteristics of managerial economics in brief. 

 

  1. Art and Science

 

Managerial Economics requires a lot of creativity and logical thinking to come up with a solution. A managerial economist should possess the art of utilizing his capabilities, knowledge, and skills to achieve the organizational objective. Managerial Economics is also considered as a stream of science as it involves the application of different economic principles, techniques, and methods, to solve business problems.

 

 

  1. Microeconomics

 

In managerial economics, problems of a particular organization are looked upon rather than focusing on the whole economy. Therefore it is termed as a part of microeconomics. 

 

 

  1. Uses Macroeconomics

 

Any organization operates in a market that is a part of the whole economy, so external environments affect the decisions within the organization. Managerial Economics uses the concepts of macroeconomics to solve problems. Managers analyze the macroeconomic factors like market conditions, economic reforms, government policies to understand their impact on the organization. 

 

 

  1. Multi-disciplinary

 

Managerial Economics uses different tools and principles from different disciplines like accounting, finance, statistics, mathematics, production, operation research, human resource, marketing, etc. This helps in coming up with a perfect solution. 

 

 

  1. Management oriented and pragmatic

 

Managerial economics is a tool in the hands of managers that aids them in finding appropriate solutions to business-related problems and uncertainties. As mentioned above, managerial economics also helps in goal establishment, policy formation, and effective decision making. It is a practical approach to find solutions. 

 

 

Types of Managerial Economics

 

Everyone has their perceiving ability, so the same goes with managerial economics. All managers perceive the concept of managerial economics differently. For some, customers’ satisfaction can be the priority while some may focus on efficient production. This leads us to different types of managerial economics. So, let us explore the different approaches to managerial economics. 

 

  1. Liberal Managerialism

 

Market is a free and democratic place in terms of decision making. Customers get a lot many options to choose from. So, companies have to modify their policies according to consumers’ demands and market trends. If not done so, it may result in business failures. This is what we call liberal managerialism. 

 

  1. Normative Managerialism

 

The normative view of managerial economics means that the decisions taken by the administration would be normal, based on real-life experiences and practices. The decisions reflect a practical approach regarding product design, forecasting, marketing, supply and demand analysis, recruitments, and everything else that is concerned with the growth of a business. 

 

  1. Radical Managerialism

 

Radical managerialism means to come up with revolutionary solutions. Sometimes, when the conventional approach to a problem doesn’t work, radical managerialism may have the solution. However, it requires the manager to possess some extraordinary skills and thinking to look beyond. In radical managerialism, consumer needs and satisfaction are prioritized over profit maximization. 

 

So, these were the three different types of managerial economics. These are decided based on the different approaches by managers.

 

Recommended Blog: Stripe vs Paypal: How to Decide the Right Payment Platform for Online Business

 

 

Principles of Managerial Economics

 

The great macroeconomist N. Gregory Mankiw has given ten principles to explain the significance of managerial economics in business operations which can be further classified into three categories. 


The image shows different principles of Managerial Economics.

Principles of Managerial Economics


 

Principles of How People Make Decisions

 

Based on the real-life decision-making processes, four principles are recalled in Managerial Economics. 

 

1. People Face Tradeoffs

There are enormous options in the market. So, people have to make choices among the various options available. 

 

2. Opportunity Cost

Every decision involves an opportunity cost that is the cost of those options which we let go of while selecting the most appropriate one.

 

3. Rational People Think at the Margin

When we make choices from the various options available and before investing the capital or resources we look at the profit margin we would make in the investment.

 

4. People Respond to Incentives

It is human nature to look for something extra while purchasing something. Decision-making is affected by the incentives attached to a particular product or service. Positive incentive motivates people to opt for the particular product while negative incentive discourages. 

 

 

Principles of How People Interact

 

Communication with the audience plays a vital role in good performance. Over the years, organizations have realized the need to communicate well with their audience. Based on this, three principles are given in Managerial Economics. 

 

1. Trade can Make Everyone Better Off

This principle states that trade is a medium to exchange services and products. Everyone gets a fair chance to offer products and services which they are good at making and also to purchase those products and services. Also Read: The success story of Delhivery

 

2. Markets Are Usually A Good Way to Organize Economic Activity

Market is a place where buyers and sellers interact with each other. Consumers put in their demands and requirements and the producers decide on the production and supply of those products and services.

 

3. Government can better the market outcomes

Government intervenes in business operations whenever there are unfavorable market conditions like the current pandemic situation or also for the welfare of society. One example of the latter is deciding the minimum wage for laborers. 

 

Referred Blog | How is India recovering from the economic slowdown

 

 

Principle of How Economy Works as a Whole

 

Three principles are given to explain the role of the economy in the functioning of an organization. 

 

1. A Country’s Standard of Living Depends on the Goods and Services produced

The role of organizations in the economic growth of a country is one of the major, so, the organizations must be capable enough to produce goods and services for the population. This ultimately raises the standard of living and also contributes to GDP growth. 

 

2. Price Rises When Government Prints Too Much Money

If there is surplus money available with people, their spending capacity increases, ultimately leading to a rise in demand. When the producers are unable to meet the consumer’s demand, inflation takes place. Referred blog: What does the 24% shrink in India’s GDP mean?

 

3. Society Faces a Short-Run Tradeoff between Inflation and Unemployment

Government bring-in policies to tackle the problem of unemployment and boost the economy in the short run as well. This further leads to inflation. 

 

Scope of Managerial Economics

 

Managerial Economics has a more narrow scope. It solves a firm’s problem using microeconomics. In the situation of scarce resources, managerial economics ensures that managers make effective and efficient decisions that are equally beneficial to customers, suppliers, and the organization. The fact of scarcity of resources gives rise to three fundamental questions-

 

  1. What to produce?

  2. How to produce?

  3. For whom to produce?

 

To answer these questions, a firm makes use of managerial economics principles.

 

Managerial Economics is not only applicable to profit-making business organizations, but also to non- profit organizations such as hospitals, schools, government agencies, etc.

 

Read this article to know about the scope of Managerial Economics in detail.

 

Conclusion

 

We tried to explain Managerial Economics through this blog. The definition of Managerial Economics says that it is a branch of economics that deals with the application of various theories, concepts, and methodologies to solve business problems. It is said to cover the gap between problem of logic and problem of policy. 

 

For any firm to be successful, it needs to solve its problems logically and rationally. Managerial Economics helps the managers to make effective and efficient decisions using the concepts of microeconomics. One of the top characteristics of Managerial Economics is that it uses the different factors of macroeconomics helping firms to act according to the market trends. 

Latest Comments

  • brenwright30

    May 11, 2024

    THIS IS HOW YOU CAN RECOVER YOUR LOST CRYPTO? Are you a victim of Investment, BTC, Forex, NFT, Credit card, etc Scam? Do you want to investigate a cheating spouse? Do you desire credit repair (all bureaus)? Contact Hacker Steve (Funds Recovery agent) asap to get started. He specializes in all cases of ethical hacking, cryptocurrency, fake investment schemes, recovery scam, credit repair, stolen account, etc. Stay safe out there! Hackersteve911@gmail.com https://hackersteve.great-site.net/

  • johnconniff00558ba69373e364729

    May 14, 2024

    Years ago, as part of my divorce I granted my ex-wife the house that we bought together while married and she assumed responsibility for it. At some point she started paying her mortgage late and that eventually found its way to my credit report (some company called PHH). Since it had nothing to do with me, I disputed the account and submitted my divorce decree that clearly shows she assumed responsibility and I no longer have any interest in the house etc. the dispute was denied and come back verified. Frustrating since I had nothing to do with it but at the time I assumed I was stuck with it because in the eyes of creditors I was still on the hook for the debt (the house wasn’t refinanced out of my name at the time). There are several 180 days late and they are the only baddies left on my report. All this brought down my credit score to 522. I can’t thank PINNACLE CREDIT SPECIALIST enough for taking my credit out of the garbage after my divorce. PINNACLE CREDIT SPECIALIST has done such an amazing job to help me clear all the negative items and restore my credit score to 811. This company has been so professional and so amazing at keeping in touch with me every single step of the way. Explaining in detail exactly what needs to be done. Thank you PINNACLE CREDIT SPECIALIST I will recommend their service to all my friends and family. Contact them via: PINNACLECREDITSPECIALIST@GMAIL.COM / +1 (409) 231-0041.

  • Susan Bickford

    May 21, 2024

    It's A Great News to Celebrate with you Viewer, I am truly living the life I have been looking for after Dr Kachi made me win my Powerball Lottery, I had been playing for a good 8years. It was a friend of mine who directed me to Dr Kachi because my friend Nancy has won the Powerball so many times and I don't know how she got the match six numbers to play and win a very big amount of money, then the last time she won the Mega Millions I told her to tell me the secret on how she win. That's when she started telling me about the powerful Dr Kachi who has been her helper. and she gave me Dr Kachi Text/Call Number:+1 (209) 893-8075 I texted the greatest spell caster Dr Kachi and I told him I wanted to win my Powerball with his spiritual rightful number and he told me I should give him 2hours to get everything done and hopefully Dr Kachi do it, and give me a winning numbers to play my ticket that make me win the prize of $223.3 Million Dollars Powerball lottery Tuesday i bought the winning ticket at the Carlie C’s IGA store in Hope Mills, that changed my life for good today, and Dr Kachi a strong spell caster and trust him when he says the results will manifest it's Truth, God bless you Dr kachi for your kind help also can Email: drkachispellcast@gmail.com or website:  https://drkachispellcaster.wixsite.com/my-site

  • yaniraalvarez890f2c6fc7b91094220

    May 21, 2024

    The lottery is very easy to win, but only when you find the right person that can help you for real, that is the only way you can become a big lottery winner. I will share my experience with Dr Lucas to you because i want you to be a partaker of the blessings of Dr Lucas, I lost a lot of money to the wrong people trying to win the lottery, but i never stopped trying because i know I'm destined to win, when i was doing some searchings online i came across Dr Lucas and i took his email and WhatsApp numbers and messaged him, he was so real to me and didn't waste a lot of time before he started working on my winning numbers, I'm Yanira Alvarez from Los Angeles, the Powerball's $1.8B jackpot winner, you can do research about my winning, this is not a joke spell still works, the numbers Dr.Lucas gave me to play was 7, 10, 11, 13, 24, and 24. I urge everyone trying to win the lottery to reach out to Dr.Lucas on Email drlucasspelltemple@gmail.com or WhatsApp +234 904 794 3567 Thank You

  • yaniraalvarez890f2c6fc7b91094220

    May 21, 2024

    The lottery is very easy to win, but only when you find the right person that can help you for real, that is the only way you can become a big lottery winner. I will share my experience with Dr Lucas to you because i want you to be a partaker of the blessings of Dr Lucas, I lost a lot of money to the wrong people trying to win the lottery, but i never stopped trying because i know I'm destined to win, when i was doing some searchings online i came across Dr Lucas and i took his email and WhatsApp numbers and messaged him, he was so real to me and didn't waste a lot of time before he started working on my winning numbers, I'm Yanira Alvarez from Los Angeles, the Powerball's $1.8B jackpot winner, you can do research about my winning, this is not a joke spell still works, the numbers Dr.Lucas gave me to play was 7, 10, 11, 13, 24, and 24. I urge everyone trying to win the lottery to reach out to Dr.Lucas on Email drlucasspelltemple@gmail.com or WhatsApp +234 904 794 3567 Thank You.

  • Diane Austin

    May 22, 2024

    GET RICH WITH BLANK ATM CARD, Whatsapp: +18033921735 I want to testify about Dark Web blank atm cards which can withdraw money from any atm machines around the world. I was very poor before and have no job. I saw so many testimony about how Dark Web Online Hackers send them the atm blank card and use it to collect money in any atm machine and become rich {DARKWEBONLINEHACKERS@GMAIL.COM} I email them also and they sent me the blank atm card. I have use it to get 500,000 dollars. withdraw the maximum of 5,000 USD daily. Dark Web is giving out the card just to help the poor. Hack and take money directly from any atm machine vault with the use of atm programmed card which runs in automatic mode. You can also contact them for the service below * Western Union/MoneyGram Transfer * Bank Transfer * PayPal / Skrill Transfer * Crypto Mining * CashApp Transfer * Bitcoin Loans * Recover Stolen/Missing Crypto/Funds/Assets Email: darkwebonlinehackers@gmail.com Telegram or WhatsApp: +18033921735 Website: https://darkwebonlinehackers.com

  • Diane Austin

    May 22, 2024

    GET RICH WITH BLANK ATM CARD, Whatsapp: +18033921735 I want to testify about Dark Web blank atm cards which can withdraw money from any atm machines around the world. I was very poor before and have no job. I saw so many testimony about how Dark Web Online Hackers send them the atm blank card and use it to collect money in any atm machine and become rich {DARKWEBONLINEHACKERS@GMAIL.COM} I email them also and they sent me the blank atm card. I have use it to get 500,000 dollars. withdraw the maximum of 5,000 USD daily. Dark Web is giving out the card just to help the poor. Hack and take money directly from any atm machine vault with the use of atm programmed card which runs in automatic mode. You can also contact them for the service below * Western Union/MoneyGram Transfer * Bank Transfer * PayPal / Skrill Transfer * Crypto Mining * CashApp Transfer * Bitcoin Loans * Recover Stolen/Missing Crypto/Funds/Assets Email: darkwebonlinehackers@gmail.com Telegram or WhatsApp: +18033921735 Website: https://darkwebonlinehackers.com

  • Diane Austin

    May 22, 2024

    GET RICH WITH BLANK ATM CARD, Whatsapp: +18033921735 I want to testify about Dark Web blank atm cards which can withdraw money from any atm machines around the world. I was very poor before and have no job. I saw so many testimony about how Dark Web Online Hackers send them the atm blank card and use it to collect money in any atm machine and become rich {DARKWEBONLINEHACKERS@GMAIL.COM} I email them also and they sent me the blank atm card. I have use it to get 500,000 dollars. withdraw the maximum of 5,000 USD daily. Dark Web is giving out the card just to help the poor. Hack and take money directly from any atm machine vault with the use of atm programmed card which runs in automatic mode. You can also contact them for the service below * Western Union/MoneyGram Transfer * Bank Transfer * PayPal / Skrill Transfer * Crypto Mining * CashApp Transfer * Bitcoin Loans * Recover Stolen/Missing Crypto/Funds/Assets Email: darkwebonlinehackers@gmail.com Telegram or WhatsApp: +18033921735 Website: https://darkwebonlinehackers.com

  • maamarazaq934c0fe8a4ec485d

    May 22, 2024

    Astrologer Simple Love Spells That Actually Work in USA UK Canada +27735257866 South Africa UAE Indonesia Singapore Turkey Luxembourg Finland Norway German Spain Sweden Malta Brunei Ireland Iceland Australia Qatar Croatia Austria Denmark Netherlands Romania Belgium Greece Belarus New Zealand Switzerland Cyprus Poland Estonia Egypt Fiji Wales Bahamas Taiwan Czech Republic Serbia Palau Lithuania Malaysia France Bulgaria Jordan Chile Algeria Zambia Zimbabwe Botswana Lesotho Italy Philippines Honduras Hungary Mexico Macedonia Argentina Syria Hong Kong Myanmar Kuwait South Korea Morocco Tunisia Libya Sudan San Marino Israel.. Many people still question whether love spells work or not, permanent or effective. This can be based on past experiences where they tried some spell casters but were not fully satisfied with their results or the love spells worked for just a short period and sometimes even never saw any results. You can contact maamarazaq on +27735257866 (Call/WhatsApp) OR Email:sheikhmbuga5@gmail.com https://maamarazaq.doodlekit.com http://bestlovespells.over-blog.com https://mamarazaq.blogspot.com https://maamarazaqspellscaster.podbean.com To avoid such situations you have to be careful with the spell casters you approach, some are limited with certain Spiritual powers to cast good love spells to help people in their relationships or marriages. Many good love spell casters are out there in the world (Africa, Europe,USA and so on) Yes, love spells really work, whether you are in a situation where you want to bring back your lost lover (lost lover spell), you want to get married to someone in a relationship (marriage spells), to increase love in your relationship (love affection spells) and many other related love spells, you will get help.

  • hethercahill536bc8724aa32e543c4

    May 25, 2024

    Yes, it feels good to have a worthy credit profile. I want to use this time to appreciate PINNACLE CREDIT SPECIALIST for bringing me out of bad credit report that made my life miserable, I had 2 months late actually, I missed the 3/20 payment entirely, and paid the 4/20 payment on 4/27, after the late hit my credit report. I woke up that morning and it had dropped-100 points. I needed to get rid of it from my report. PINNACLE CREDIT SPECIALIST came through for me, my credit report cleaned up with all negative entries removed, student loan, charge offs, collections wiped out including late payments were all marked as paid on time. My score is now 804. I’m happy to have read about PINNACLE CREDIT SPECIALIST here, you can contact him today via: PINNACLECREDITSPECIALIST@GMAIL.COM Or Text (409) 231-0041. They’re the best as far as credit repair is concerned.