Managerial Economics – Definition:
“Managerial economics is concerned with the application of economic concepts and economic
analysis to the problems of formulating rational managerial decisions.
Nature and Scope of Managerial Economics:
The most important function in managerial economics is decision-making. It involves the
complete course of selecting the most suitable action from two or more alternatives. The
primary function is to make the most profitable use of resources which are limited such as labor,
capital, land etc. A manager is very careful while taking decisions as the future is uncertain; he
ensures that the best possible plans are made in the most effective manner to achieve the desired
objective which is profit maximization.
Economic theory and economic analysis are used to solve the problems of managerial
Economics basically comprises of two main divisions namely Micro economics and
Managerial economics covers both macroeconomics as well as microeconomics, as both
are equally important for decision making and business analysis.
Macroeconomics deals with the study of entire economy. It considers all the factors such
as government policies, business cycles, national income, etc.
Microeconomics includes the analysis of small individual units of economy such as
individual firms, individual industry, or a single individual consumer.
All the economic theories, tools, and concepts are covered under the scope of managerial
economics to analyze the business environment.
The scope of managerial economics is a continual process, as it is a developing science.
Demand analysis and forecasting, profit management, and capital management are also
considered under the scope of managerial economics.