Businesses need to make crucial decisions on a day-to-day basis. These decisions can be about an investment opportunity, a new product, a new competitor, or a company’s direction. For such important decisions, businesses need to rely on experts. These experts come from the background of Managerial Economics. They are the experts who provide monetary value to the different opportunities and then urge the company to proceed.
Managerial economics is a stream of management studies that emphasizes primarily on solving business problems and decision-making by applying the theories and principles of microeconomics and macroeconomics. It is a specialized stream dealing with an organization’s internal issues using various economic tools. Economics is an indispensable part of any business. This single concept derives all the business assumptions, forecasting, and investments.
You need to know about the various characteristics of managerial economics to get more knowledge about it. Let’s read about the nature of managerial economics.
Management theory requires a lot of critical and logical thinking and analytical skills to make decisions or solve problems. Many economists also find it a source of research, saying it includes applying different economic concepts, techniques, and methods to solve business problems.
Managers typically deal with the problems relevant to a single entity rather than the economy as a whole. It is, therefore, considered an integral part of microeconomics.
A corporation works in an external world, i.e., serving the consumer, an important part of the economy. For this purpose, managers must evaluate the various macroeconomic factors, such as market dynamics, economic changes, government policies, etc., and their effect on the company.
Managerial economics uses many tools and principles that belong to different disciplines, such as accounting, finance, statistics, mathematics, production, operational research, human resources, marketing, etc.
By introducing corrective steps managerial economics aims at achieving the objective and solves specific issues or problems.
This serves as an instrument in managers’ hands to deal effectively with business-related problems and uncertainties. This also allows for setting priorities, formulating policies, and making successful decisions.
The solution to day-to-day business challenges is realistic and rational.
Different individuals take different views of the principles of managerial economics. Others may concentrate more on customer service and prioritize efficient production.
Recommended Read: Nature and Scope of Macroeconomics
The branch of managerial economics comprises various concepts:
A market is a democratic space where people make their choices and decisions. The organization and its managers must function according to the customers’ demand and market trends otherwise; this can lead to business failures.
Managerial economics’ normative view states that administrative decisions are based on experiences and practices of real life. They systematically study demand, forecasting, cost control, product design and promotion, recruitment, etc.
Managers have to have a creative approach to business concerns, i.e., make decisions to improve the current situation or circumstance. We concentrate more on the need and satisfaction of the consumer rather than just the maximization of income.
The excellent macroeconomist N. Gregory Mankiw has given ten principles to explain the significance of managerial economics in business operations.
Managerial economics follows several principles. These principles help in assessing its application in diverse areas. Both conceptual and metrical aspects are dealt with in this field. Problems often arise due to a disequilibrium in the economic theory and managerial theory of business organizations. Various analytical tools enable the firms to identify the nature and measure of problems.
The principles of managerial economics are as follows:
Let us go through the following principles to understand how decision-making takes place in real life:
Communication and market impact business transactions. Let us take a look at the following related principles to justify the statement:
The following theory outlines the economic role of an organization’s functioning:
• The standard of living of a country depends on its capacity to generate goods and services: The companies must be productive enough to produce products and services to develop a country’s economy. Ultimately it meets the customer’s demand and enhances GDP to increase the standard of living in the country.
• Prices increase when the government’s printing lots of money: Suppose surplus money is available to citizens, and their capacity to spend increases. Eventually, it would lead to a rise in demand. Inflation takes place when the manufacturers are unable to satisfy market demand.
• Society faces a short-term correlation between unemployment and inflation: The government introduces numerous economic policies to reduce unemployment. In the short term, such policies target to improve the economy and what kind of practice contributes to inflation.
The definition of managerial economics is commonly used to deal with various business problems within organizations. Both microeconomics and macroeconomics have an equal effect on the organization and its work. The following points illustrate its significance:
The various theories or principles of microeconomics used to solve the internal problems of the organization arising in the course of business operations are as follows:
Any organization is greatly affected by the environment in which it operates. The business climate can be defined as:
Management economics is an important method for assessing the company’s priorities and objectives, the organization’s current role, and what the management can do to fill the void between the two.
Deriving from the definition of managerial economics, we have listed down the best options you can pursue in this field.
Banking sector job profiles are financial analysts, consultants, financial advisers, investment bankers, environmental policymakers, development officers, or part of Research and Development.
They deal with various sectors and companies, and their main role is to serve as an intermediary between the corporate and the outside world.
There are several programs and courses to procure a degree in managerial economics. You can acquire in-depth knowledge in this field by doing higher studies in this subject. Many renowned institutions offer such programs along with good placements. Having high-level knowledge can fetch your impeccable opportunities.
They analyze the company’s financial details and calculate the associated default risk to help the lender and the buyer.
A Financial Controller or Economist is concerned with analyzing the day-to-day financial operations of an organization. He/she supervises the finance and accounting department and prepares financial reports.
A Market Analyst analyses the market so that their employers can make a better decision concerning product launching or rendering services.
From output to the review of statistics to educating new staff, an operations manager manages all day-to-day activities in the company and needs to ensure that the organization runs optimally.
If you want to be a lecturer or become a senior economics teacher in private schools, apply for the NET / CTET exam in the field of education. After completing an M.A in Economics with a mark of at least 55 percent an applicant can either seek a Ph.D. at any college or appear for UGC-NET. The exam is administered by the NTA.
An equity analyst extracts equity information for investment purposes and explores stock market insights to identify where to invest or whether to proceed or sell on the market.
A Cost Accountant plans, studies, and records the costing concepts of an organization. He/she analyzes the fixed and variable costs to obtain the company’s total cost. Cost Accountant is one of the exciting career options under the scope of managerial economics.
You can join the Economic Services of India. For joining this service, you have to appear for the Indian Economic Service Exam. You should have completed M.Sc or MA. in economics with at least 55 percent marks. The age range is from 21-30 years. UPSC administers the test.
The Reserve Bank of India also recruits banking-sector economists through various recruitment exams. The age limit is 21-28 years.
An Economics degree holder can try for both private and foreign banks. The Banking job categories are branch managers, clerks, economic analysts, planning and development officers, etc.
Agricultural Economics is an advanced branch of Economics. An agricultural economist optimizes the production, distribution, and consumption of food and fiber products.
Experienced and professional economists in well-known international organizations such as the World Bank and the International Labor Organisation (ILO) can get great employment opportunities.
Graduates in Economics can work as economic consultants independently. In the case of various scientific research and consulting in the private sector, companies can ensure optimal job opportunities. The position includes Economic Researcher, Business Economist, Investment Analyst, etc.
Economists possessing a profound understanding of the market can create their own start-ups. They can evaluate the industry dynamics and competitive business sectors, and thereon design their business processes. Ultimately, they can achieve exponential growth by starting their own business. Besides, it will also aid the unemployment problems in the country by generating work opportunities.
You can also join the news media by becoming an economic or editorial journalist. You can complete your graduation or post-graduation in mass communication and head towards joining mass media. Even if your educational discipline is different you can take up this option. By having the required knowledge and skills relating to this field, you can grow in your career exceptionally.
An Actuary plays a vital role in an organization. With the help of various financial theories and statistics, they analyze the economic cost of financial risks. They assist business organizations to minimize costs by designing effective policies.
Suggested Read: Career Options in Economics
Managerial economics holds great significance in various management processes. The main importance of managerial economics in an organization are Demand analysis & forecasting, Profit management, and Capital management. It assists an organization in its decision-making process by integrating the tools and techniques of economic theories with multiple business activities.
Managerial economics deals with the optimum utilization of scarce resources. It ensures the proper functioning of the firm by using the resources effectively. It guides the management in rational decision-making, implementing both economic theories and econometrics. With the help of factual data solutions, several economic problems are curated.
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The following are some of the core concepts in managerial economics: Liberal Managerialism, Normative managerialism, Radical Managership.
The types of managerial economics are:
1. Liberal Managerialism: People make decisions and choices in a market, which is a democratic setting. Organization action and the managers must function according to the customers’ demand and market trends; otherwise, this can lead to business failures.
2. Normative managerialism: According to the normative approach of managerial economics, administrative choices are founded on actual experiences and practices. They employ a methodical approach to research demand, forecasting, cost management, product creation and promotion, hiring, etc.
3. Radical Managership: Managers have to have a creative approach to business concerns, i.e., they have to make decisions to improve the current situation or circumstance. We concentrate more on the need and satisfaction of the consumer rather than just the maximization of income.
Every day, decisions affecting the future of the company are made. These choices may relate to an investment opportunity, a new product, a new rival, or the course of a business. Businesses must turn to specialists in managerial economics for such critical decisions.
Managerial economics is both a cumulation of art and science. To make decisions or find solutions, one must have a strong sense of logic, critical thinking, and analytical abilities. Many economists use it as a study resource since it entails using many economic theories, strategies, and approaches to address business issues.
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