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Managerial Economics – Application of Economic Theory in Solving Business Problems!
Managerial economics is related to various micro and macroeconomic tools, and its analysis can be used in making managerial decisions to solve business problems. Microeconomic tools used in this topic include demand analysis, production and cost analysis, break-even analysis, pricing theory and practice, technical progress, location decisions, and capital budgeting. Macroeconomic concepts directly or indirectly related to managerial decision making include national income analysis, business cycles, monetary policy, fiscal policy, central banking, government finance, economic growth, international trade, balance of payments, free trade protectionism, exchange. rates and the international currency system.
The scope of this management science is wide and it is closely related to economic theory, decision sciences and accounting. Traditional economics talks about theory and methodology, while managerial economics applies economic theory and methodology to solve business problems. Uses analytical tools and techniques to provide optimal solutions to business problems.
- Connection with the economy:
Managerial economics borrows concepts from economics, just as engineering borrows from physics and medicine from biology. Analyzing both micro and macroeconomic concepts adds valuable inputs to an organization. Forecasting national income, for example, is an important aid to business analysis, which in turn can be an invaluable input for forecasting demand for specific product groups. Market structure theories can be analyzed for the purpose of market segmentation.
- Link to Decision Sciences:
Decision models are created to formulate solutions for problem situations and use techniques such as process optimization, differential calculus, and mathematical programming. It also helps to analyze the impact of an alternative course of action and evaluate the results from the model.
- Contact with accounting:
Accounting data and reports form the language of business. The accounting profession has a significant impact on cost and revenue data and their classification. Therefore, the manager should be familiar with the creation, interpretation and use of accounting data. In addition, accounting is viewed as a management decision tool rather than just an accounting practice. Accounting concepts and practices can be very well applied to improve project economies of scale.
Economics is an interesting subject because it deals with the day-to-day problems of the common man and at the same time deals with the economic well-being of the country as a whole. Its focus is on the allocation of scarce resources among competing goals. Individuals, businesses and states face the problem of resource allocation. Managerial economics can be viewed as economics applied to solving problems at the firm level.
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