MANAGERIAL ECONOMICS
AND ITS
RELATION WITH OTHER
SUBJECTS
INTROCUCTION TO MANAGERIAL
ECONOMICS:
Managerial economics generally refers to the integration of
economic theory with business practice. Economics provides tools
managerial economics applies these tools to the management of
business. In simple terms, managerial economics means the application
of economic theory to the problem of management. Managerial
economics may be viewed as economics applied to problem solving at
the level of the firm.
It enables the business executive to assume and analyze things. Every
firm tries to get satisfactory profit even though economics emphasizes
maximizing of profit. Hence, it becomes necessary to redesign
economic ideas to the practical world. This function is being done by
managerial economics.
DEFINITION: According to E.F. Brigham and J. L. Pappar, Managerial
Economics is the application of economic theory and methodology to
business administration practice.
Milton H. Spencer and Lonis Siegelman define Managerial
Economics as the integration of economic theory with business practice
for the purpose of facilitating decision making and forward planning by
management.
RELATION WITH OTHER AREAS:
Managerial economics is closely linked with many other
disciplines such as economics,
accounting, mathematics, statistics, operations research, psychology,
and organizational behavior. Let us see these linkages in detail:
1. RELATION WITH ECONOMICS:
Managerial Economics has been described as economics applied
to decision-making. It may be viewed as a special branch of economics
bridging the gulf between pure economic theory and managerial
practice. The relation between Managerial Economics and Economics is
as close as is Engineering to Physics and Medicines to Biology.
Traditional Economics has two main divisions: microeconomics and
macroeconomics. Microeconomics; also known as price theory, is the
main source of concepts and analytical tools for managerial economics.
To illustrate, various microeconomic concepts such as elasticity of
2
demand, marginal cost, the short and long runs, opportunity cost,
various market forms, etc., are all of great significance to managerial
economics. The chief contribution of macroeconomics is in the area of
forecasting. The modern theory of income, employment, trade cycles,
etc. has implications for forecasting general business conditions. As the
prospects of an individual firm often depend greedy on general
business conditions, individual firm forecasts depend on general
business forecasts.
[Link] WITH OPERATIONAL RESEARCH:
Operational Research is closely related to managerial
economics. Operational research is the application of mathematical
techniques to solving business problems. It provides all the data
required for business decisions and forward planning. Techniques
such as linear programming, game theory, etc. are due to the works
of operational research, linear programming is extensively used in
decision-making. Managerial economics is concerned with efficient
use of scarce resources. Operational research is also concerned with
efficient use of scarce resources. There is close affinity between
managerial economics and operational research. Managerial
economics gives special emphasis to the problems involving
maximization of profits and minimization of costs, while operational
research focuses attention on the concept of optimization.
Managerial economics has made much use of optimization concept
but initially started with marginal analysis taken from economics.
Managerial economics uses the logic of Economics, Mathematics and
3
Statistics for undertaking effective decisions, while operational
research techniques based on these ways of thinking are being used
to solve decision-making problems in business. Again, both
operational research and managerial economics are concerned with
taking effective decisions.
[Link] WITH ACCOUNTING:
Managerial economics and accounting are closely interrelated.
Accounting can be defined as the recording of financial operations of a
business firm. A business manager needs a lot of accounting
information data for logical analysis in decision-making and policy
formulation at the level of firm. The accounting data and information
has to be presented in a methodological manner worthy of analysis and
interpretation for decision-making and future planning. This is why a
new branch of accounting known as 'management accounting' has
developed to help correct managerial decision-making. The main task
of management accounting is to provide the sort of data which
managers need to solve some business problems accurately.
[Link] WITH MATHEMATICS:
Managerial economist is concerned with estimating the relevant
economic factors for decision making and forward planning.
In this process, he extensively makes use of the tools and techniques of
mathematics such as algebra, calculus, exponentials, vectors, input-out
tables and such other.
4
[Link] WITH STATISTICS:
statistical tools are used in collecting data and analyzing them to
help in the decision making process. Statistics deals with different
techniques useful to analyze the cause and effect relationships in a
given variable. The theory of probability is very useful in problems
involving uncertainty. The statistical techniques such as averages,
measures of dispersion, correlation, regression, time series,
interpolations, probability, and so on.
[Link] WITH PSYCHOLOGY:
Consumer psychology is the basis on which managerial economist
acts up on. How the customer reacts to a given change in price or
supply and its consequential effect on demand/profits. Psychology
contributes towards understanding the behavioral attitudes of
customers.
[Link] WITH PERSONNEL MANAGEMENT:
A human resource manager has to concern himself with two types
of problems: (i) an effective utilization of human resources in terms of
costs and productivity and (ii) improvement in the terms and conditions
of employment as an adjunct to employee satisfaction. Manpower
planning, at the micro level, is another important function of an HRD
manager wherein a firm ensures that it has the right number and the
right kind of people, at the right places, at the right time, doing work
for which they are economically most useful.
5
Managerial economics can help personnel management by analyzing
the economic and financial aspects of personnel problems both in
relation to the economic welfare of the firm and to the prevailing
environment of the economy as a whole. It explains the economic
implications of policies and strategies and judges their consistency with
respect to organizational objectives as well as internal and external
constraints. It can provide a safety range for wage negotiations with
trade unions. Business forecasting could provide information for
devising employment norms of the sales force.
CONCLUSION: I Concluded that Managerial Economics, related to other areas
or other subjects, helps in assume and analyze things. Hence, it becomes
necessary to redesign economic ideas to the practical world.