Comparison between Managerial Economics and Traditional Economics Traditional Economics Managerial Economics

1. Traditional

economics

is

both 1. Managerial

economics

is

only

microecomics and macroeconomics in nature

microeconomic in nature

2. Managerial economics has a limited 2. Traditional economic as a wide scope. It deals with each and every aspect of the firm. scope. It is concerned with decision making and economic theories that guide the managerial decision-making.

3. Traditional economics is both normative and positive sciences

3. Managerial economics is a normative science.

4. Traditional economics is concerned with theoretical aspects of the firm.

4. Managerial

economics

deals

with

practical aspects of the firm.

5. Traditional economics consider only the economic aspects of a problem while decision making.

5. Managerial economics considers both economic and non economic aspects of a problem while decision-making.

6. Traditional economics deals with both 6. Managerial economics is concerned with micro and macro of a firm decision making of a firm.

Role of Managerial Economics

Managerial economics, or business economics, is a division of microeconomics that focuses on applying economic theory directly to businesses. The application of economic theory through statistical methods helps businesses make decisions and determine strategy on pricing, operations, risk, investments and production. The overall role of managerial economics is to increase the efficiency of decision making in businesses to increase profit.

Pricing

Managerial economics assists businesses in determining pricing strategies and appropriate pricing levels for their products and services. Some common analysis methods are price discrimination, value-based pricing and cost-plus pricing.

Elastic vs. Inelastic Goods

Economists can determine price sensitivity of products through a price elasticity analysis. Some products, such as milk, are consider a necessity rather than a luxury and will purchase at most price points. This type of product is considered inelastic. When a business knows they are selling an inelastic good, they can make marketing and pricing decisions easier.

Operations and Production

Managerial economics uses quantitative methods to analyze production and operational efficiency through schedule optimization, economies of scale and resource analyses. Additional analysis methods include marginal cost, marginal revenue and operating leverage. Through tweaking the operations and production of a company, profits rise as costs decline.

Investments

Many managerial economic tools and analysis models are used to help make investing decisions both for corporations and savvy individual investors. These tools are use to make stock market investing decisions and decisions on capital investments for a business. For example, managerial economic theory can be used to help a company decide between purchasing, building or leasing operational equipment.

Risk

Uncertainty exits in every business and managerial economics can help reduce risk through uncertainty model analysis and decision-theory analysis. Heavy use of statistical probability theory helps provide potential scenarios for businesses to use when making decisions.