Production analysis : microeconomic techniques are used to
analyze production efficiency, optimum factor allocation, costs,
economies of scale and to estimate the firm’s cost function.
Pricing analysis : microeconomic techniques are used to analyze
various pricing decisions including transfer pricing, joint product
pricing, price discrimination, price elasticity estimations, and
choosing the optimum pricing method.
Capital budgeting : Investment theory is used to examine a firm’s
capital purchasing decisions.
At universities, the subject is taught primarily to advanced
undergraduates and graduate business schools. It is approached as an
integration subject. That is, it integrates many concepts from a wide variety
of prerequisite courses.
1.3 Need of Managerial Economics
It has been receiving more attention in business as managers
become more aware of its potential as an aid to decision-making, and
this potential is increasing all the time. This is happening for several
1 It is becoming more important for managers to make good decisions
and to justify them, as their accountability either to senior management
or to shareholders increases.
2 As the number and size of multinationals increases, the costs and
benefits at stake in the decision-making process are also increasing.
3 In the age of plentiful data it is more imperative to use quantitative and
rationally based methods, rather than ‘intuition’.
4 The pace of technological development is increasing with the impact of
the ‘new economy’. Although the exact nature of this impact is
controversial, there is no doubt that there is an increased need for
economic analysis because of the greater uncertainty and the need to
5 Improved technology has also made it possible to develop more
sophisticated methods of data analysis involving statistical techniques.
Modern computers are adept at ‘number-crunching’, and this is a
considerable aid to decision-making that was not available to most
firms until recent years.