Importance of Managerial Economics

Managerial economics is a subset of Micro Economics. Managerial economics is also referred to as “Business Economics.” Using this, managers make informed business decisions. It makes extensive use of math, science and statistics.

Significance

Managerial economics devises methods to utilize scarce resources most effectively. Firms use managerial science to base their decisions on what goods to manufacture and their amounts, production methods, inventory levels and the distribution and marketing channels of produced goods.

Features

Companies often have several routes for accomplishing the same task. Managerial economics enables upper management to evaluate the pros and cons associated with each route and zero on the most viable one.

Benefits

The company chooses the best paths for marketing, finance, production and operations after careful evaluation and deliberation; hence the associated losses and risks are mitigated. Also, the company is able to achieve economies in scale and specialization.

Methods

There are several tools and modeling techniques for managerial economics. Production and pricing functions determine the optimum product quantities and prices. Risk analysis studies the possibilities of loss across all stages of the production process. Regression analysis studies whether or not the company can adapt itself to changes in external factors, such as raises in tax levels.

Considerations

The company must carefully select only those employees who are familiar with the practical and theoretical aspects of the business environment to conduct economic studies.

References

• "Managerial Economics;" Ivan Png and Dale Lehman; 2007
• Economy Watch: Managerial Economics and Business Strategy