Managerial economics is a branch of economics that studies how businesses produce, distribute and consume resources, goods and services. Managerial economics -- together with financial economics, microeconomics and macroeconomics -- constitutes the backbone of economics as it is taught in business schools. It is possible to distinguish certain characteristics, or features, of managerial economics.
The theory of managerial economics is based both on microeconomics, which studies how individual households and firms behave, and macroeconomics, which is concerned with the "big picture" and analyzes gross domestic product, employment, interest rates and other macro variable. The basic presumptions of managerial economics is that economic agents, such as employers, employees and customers, act rationally. Managerial economics is linked to such disciplines as mathematics, statistics, finance, strategic planning, accounting and marketing.
Managerial economics uses different tools to help businesses manage their operations more effectively and efficiently. Among those tools are managerial accounting, managers' reports, management theory and industry data (information about competitors against which to benchmark the company's performance).
Managerial economics is a pragmatic study. Even though the discipline features a sound theoretical foundation, it is still primarily concerned with practical questions of how to cut costs, increase sales and boost returns to shareholders.
Managerial economics is designed to help managers at all levels make rational and effective decisions concerning the operations of the business. The study gives answers to questions such as how to increase efficiency of manufacturing processes, improve quality of products, cut greenhouse gas emissions, increase differentiation of the product range as well as how to set prices to maximize sales and profits.