(a) Close to microeconomics: Managerial economics is concerned with finding the solutions
for different managerial problems of a particular firm. Thus, it is more close to
(b) Operates against the backdrop of macroeconomics: The macroeconomics conditions of
the economy are also seen as limiting factors for the firm to operate. In other words, the
managerial economist has to be aware of the limits set by the macroeconomics conditions
such as government industrial policy, inflation and so on.
(c) Normative statements: A normative statement usually includes or implies the words
‘ought’ or ‘should’. They reflect people’s moral attitudes and are expressions of what a
team of people ought to do. For instance, it deals with statements such as ‘Government of
India should open up the economy. Such statement are based on value judgments and
express views of what is ‘good’ or ‘bad’, ‘right’ or ‘ wrong’. One problem with
normative statements is that they cannot to verify by looking at the facts, because they
mostly deal with the future. Disagreements about such statements are usually settled by
voting on them.
(d) Prescriptive actions: Prescriptive action is goal oriented. Given a problem and the
objectives of the firm, it suggests the course of action from the available alternatives for
optimal solution. If does not merely mention the concept, it also explains whether the
concept can be applied in a given context on not. For instance, the fact that variable costs
are marginal costs can be used to judge the feasibility of an export order.
(e) Applied in nature: ‘Models’ are built to reflect the real life complex business situations
and these models are of immense help to managers for decision-making. The different
areas where models are extensively used include inventory control, optimization, project
management etc. In managerial economics, we also employ case study methods to
conceptualize the problem, identify that alternative and determine the best course of
(f) Offers scope to evaluate each alternative: Managerial economics provides an
opportunity to evaluate each alternative in terms of its costs and revenue. The managerial
economist can decide which is the better alternative to maximize the profits for the firm.
(g) Interdisciplinary: The contents, tools and techniques of managerial economics are drawn
from different subjects such as economics, management, mathematics, statistics,
accountancy, psychology, organizational behaviour, sociology and etc.
(h) Assumptions and limitations: Every concept and theory of managerial economics is
based on certain assumption and as such their validity is not universal. Where there is
change in assumptions, the theory may not hold good at all.
SCOPE OF MANAGERIAL ECONOMICS
The main focus in managerial economics is to find an optimal solution to a given
managerial problem, the problem may related to production, reduction or control of cost,