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Concept of Economics
Economics is the science of choice in the face of unlimited ends and scarce resources which have alternative uses. Since resources are scarce and the uses to which they can be put to are unlimited, one is required to choose the best amongst the available alternatives. The crux of the problem which economics tries to address is the choice of the best uses of resources among the alternative uses. Generally, economics can be divided into two broad categories: microeconomics and macroeconomics.
Macroeconomics is the study of the economic system as a whole. It includes techniques for analyzing changes in total output, total employment, the consumer price index, the unemployment rate, and exports and imports. Only aggregate levels of these variables are considered.
Microeconomics focuses on the behavior of the individual actors on the economic stage, that is, firms and individuals and their interaction in markets.
Thus managerial economics is evolved as an important tool kits which is useful in the decision making for the manager.
The development of managerial economics as a separate discipline has a recent origin. Joel Deans book Managerial Economics published in 1951 is taken as the pioneer in this discipline. Due to wide recognition of the uses of economic theories in the decision making of the business this subject is rich in literature in these days.
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Decision Sciences
Managerial economics is concerned with the ways in which managers should make decisions in order to maximize the effectiveness or performance of the organizations they manage. - Edwin Mansfield
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Use of economic analysis in formulating policies is known as managerial economics - Joel Dean
Managerial economics is the application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently. - Dominic Salvatore
Managerial economics is the application of economic theory and methodology to business administration practice. - Pappas and Brigham
From these ideas it can be concluded managerial economics is the discipline, which deals with the application of economic theory to business management. Thus it lies on the borderline between economics and business management and serves as a bridge between these two disciplines. 7
i. Managerial economics concerns with the application of economic principles to the problems of the firm but the traditional economics deals with the body of principles itself. ii. Managerial economics is highly microeconomics in character. It studies the problems of a firm but does not study the macroeconomic phenomenon. But traditional economics consist of both micro and macro economics.
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iii. Goal Oriented: - Managerial economics is goal-oriented and prescriptive. It deals with how decisions should be formulated by managers to achieve the organizational goals.
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The most common way is explaining its areas of study, which covers all those economic concepts, theories and tools of analysis which can be used to analyze issues related to demand projection, production and cost, market structure, level of competition and general environment. Mostly, these topics are rooted in economic theory (i.e., micro- and macro economics).
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Managerial economics also takes the aid of other academic disciplines having a bearing upon the business decisions of a manager in view of the various explicit and implicit constraints subject to which resource allocation is to be optimized.
iii. Decision Making: Managerial economics helps in reaching a variety of business decisions in a complicated environment such as what to produce, what inputs and production techniques should be applied, how much output should be produced and at what prices it should be sold, what should be the product-mix, what are the best sizes and locations of new plants, when should equipment be replaced and how should the available capital be allocated, etc.
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When size of a firm expands its activities are undertaken by more specializing departments or functional areas like finance, marketing, personnel, production, etc. Managerial economics serves as an integrating agent by coordinating the different areas. The significance of which lies in the fact that the functional departments often enjoy considerable autonomy and aspire conflicting goals, and coordination of goals of different units is must to achieve the goals of the firm as a whole.
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