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Managerial economics (also called business economics), is a branch of economics that applies microeconomic analysis to specific business decisions. As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression and correlation, Lagrangian calculus, linear programming, decision theory, and game theory. It is similar to operations research in this regard, and indeed uses operations research techniques. If there is a unifying theme that runs through most of managerial economics it is the attempt to optimize business decisions given the firm's objectives and given constraints imposed by scarcity.
Almost any business decision can be analysed with managerial economics techniques, but it is most commonly applied to:
- Demand estimation - statistical techniques such as regression analysis are used to determine the level of demand for a product, service, or brand.
- Risk analysis - various uncertainty models, decision rules, and risk quantification techniques are used to assess the riskiness of a decision.
- Production analysis - microeconomic techniques are used to analyse production efficiency, optimum factor allocation , costs, economies of scaleIn economics, economies of scale are situations where the average unit cost of producing a good or service decreases as the volume of production increases. The converse situation in which the cost of producing a good or service increases as the volume of and to estimate the firm's cost function.
- Pricing analysis - microeconomic techniques are used to analyse various pricing decisionsPricing is one of the four aspects of marketing. The other three parts of the marketing mix are product management, promotion, and distribution. It is also a key variable in microeconomic price allocation theory. Pricing involves asking questions like: Ho including transfer pricingTransfer pricing refers to the pricing of goods and services within a multi-divisional organization. Goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary. The choice o, joint product pricingPricing for joint products is a little more complex that pricing for a single product. To begin with there are two demand curves. The characteristics of each demand curve could be different. Demand for one product could be greater than for the other produ, price discriminationPrice discrimination exists when sales of identical goods or services are transacted at different prices from a single vendor. Theoretically, price discrimination is a feature only of monopoly markets. In addition to a monopoly market, price discriminatio, price elasticity estimations, and choosing the optimum pricing method.
- Capital budgeting - Investment theory is used to examine a firm's capital purchasing decisionsCorporate Finance is the specific area of finance dealing with the financial decisions corporations make, and the tools and analysis used to make the decisions. The discipline as a whole may be divided between long term, capital investment decisions and s.
At universities, the subject is taught primarily to advanced undergrads. It is approached as an integration subject. That is, it integrates many concepts from a wide variety of prerequisite courses.
1 See also
- microeconomicsMicroeconomics is the study of the economic behaviour of individual consumers, firms, and industries and the distribution of production and income among them. It considers individuals both as suppliers of labour and capital and as the ultimate consumers o
- Important publications in managerial economicsMacroeconomics The Wealth of Nations Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations, 1776. Description The book is usually considered to be the beginning of modern economics. It begins with a discussion of the Industrial Revolut
