Managerial economics

Managerial economics is a branch of economics involving the application of economic methods in the managerial decision-making process.[1] Managerial economics aims to provide a frame work for decision making which are directed to maximise the profits and outcomes of a company. [2] Managerial economics focuses on increasing the efficiency of organizations by employing all possible business resources to increase output while decreasing unproductive activities. [2] The two main purposes of managerial economics are:

  1. To optimize decision making when the firm is faced with problems or obstacles, with the consideration of macro and microeconomic theories and principles. [3]
  2. To analyse the possible effects and implications of both short and long-term planning decisions on the revenue and profitability of the Business.
A Prisoner's Dilemma in Game Theory.

To correctly optimise economic decisions, both managerial economics objectives may involve the use of operations research, mathematical programming, strategic decision making, game theory[4] and other computational methods.[5] The methods listed above are typically used for making quantitate decisions by data analysis techniques.

The theory of Managerial Economics includes a focus on; incentives, business organization, biases, advertising, innovation, uncertainty, pricing, analytics, and competition.[6] In other words, managerial economics is a combination of economic and managerial theory. It helps the manager in decision-making and acts as a link between practice and theory. [7] Furthermore, managerial economics provides the device and techniques for managers to make the best possible decisions for any scenario.

Some examples of the types of questions that the tools provided by managerial economics can answer are;

  • The price and quantity of a good a business should produce.
  • Whether to invest in current staff by training or go to market for staff.
  • When to retire fleet equipment.

Managerial economics is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units to aid managers to make a wide array of multifaceted decisions. The calculation and quantitative analysis draws heavily from techniques such as regression analysis, correlation and calculus.[8]