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spring assignment solutions Q. Define Managerial Economics and explain its main characteristics

Answer: Managerial economics is a science that deals with the application of various economic theories, principles, concepts and techniques to business management in order to solve business and management problems. It deals with the practical application of economic theory and methodology to decision-making problems faced by private, public and non-profit making organizations.

The same idea has been expressed by Spencer and Seigelman in the following words. “Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management”. According to Mc Nair and Meriam, “Managerial economics is the use of economic modes of thought to analyze business situation”. Brighman and Pappas define managerial economics as,” the application of economic theory and methodology to business administration practice”. Joel dean is of the opinion that use of economic analysis in formulating business and management policies is known as managerial economics.

Features of managerial Economics
1. It is more realistic, pragmatic and highlights on practical application of various economic theories to solve business and management problems.

2. It is a science of decision-making. It concentrates on decision-making process, decision-models and decision variables and their relationships.

3. It is both conceptual and metrical and it helps the decision-maker by providing measurement of various economic variables and their interrelationships.

4. It uses various macro economic concepts like national income, inflation, deflation, trade cycles etc to understand and adjust its policies to the environment in which the firm operates.

5. It also gives importance to the study of non-economic variables having implications of economic performance of the firm. For example, impact of technology, environmental forces, socio-political and cultural factors etc.

6. It uses the services of many other sister sciences like mathematics, statistics, engineering, accounting, operation research and psychology etc to find solutions to business and management problems.

It should be clearly remembered that Managerial Economics does not provide ready-made solutions to all kinds of problems faced by a firm. It provides only the logic and methodology to find out answers and not the answers themselves. It all depends on the manager’s ability, experience, expertise and intelligence to use different tools of economic analysis to find out the correct answers to business problems.


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