What is Managerial Economics?

Managerial economics is used in a wide range of industries and sectors, including manufacturing, finance, healthcare, and technology.

Some of the key areas where economics is applied include demand analysis, cost analysis, pricing strategies, market structure analysis, production and supply chain management, and investment analysis.

Managerial economics provides a systematic and analytical approach to decision-making that helps managers make more informed and effective choices about how to allocate resources and achieve the goals of the organization.

What is Managerial Economics?

Managerial economics is a branch of economics that applies microeconomic analysis to make business decisions. It uses economic principles and quantitative techniques to analyze and solve business problems.

The main focus of managerial economics is on the allocation of resources in the most efficient way possible to achieve the goals of the organization.

Managerial Economics Meaning

The Meaning of Managerial Economics can be seen in these two words;

  • “Managerial” refers to managing business operations. While here,
  • “Economics” refers to those theories and principles of Economics that will be used to solve business problems.

Formerly it was known as Business Economics but the term has now been discarded in favour of Managerial Economics.

Definition of Managerial Economics

“Managerial Economics may be defined as the study which emphasizes solving business problems and decision-making by applying the theories and principles of microeconomics and macroeconomics.”

It is a specialized stream dealing with the organization’s internal issues by using various economic theories.

Top 10 Definitions of Managerial Economics

Here are the best Managerial Economic definitions according to various economists;

  • “The purpose of managerial economics is to show how economic analysis can be used in formulating business policies.” – Joel Dean
  • “Managerial Economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions.” – McGutgan and Moyer
  • “Managerial economic is the application of economic principles and methodologies to the decision-making process within the firm or organization.” – Douglas
  • “Managerial economic applies economic theory and methods to business and administrative decision making.” – Pappas and Hirschey
  • “Managerial economic is concerned with business efficiency.” – Christoper Savage and John R. Small
  • “Managerial economic refers to the application of economic theory and the tools of analysis of decision science to examine how an organization can achieve its objectives most efficiently.” – Salvatore
  • “The integration of economic theory and business practice for the purpose of facilitating decision making and forward planning by management.” – Spencer and Seligman
  • “Managerial economic can be viewed as an application of that part of microeconomics that focuses on such topics as risk, demand, production, cost, pricing, and market structure.” – Petersen and Lewis
  • “Managerial economic is concerned with the way in which managers should make decisions in order to maximize the effectiveness or performance of the organizations they manage.” – Edwin Mansfield
  • “Managerial economic is the study of the allocation of resources available to a firm among the activities of that unit.” – Hynes

Nature and Characteristics of Managerial Economics

  • It is Science as well as Art
  • Close to Microeconomics
  • Uses Macroeconomics
  • Multi-disciplinary
  • Prescriptive and Normative Discipline
  • It is Goal-Oriented
  • It is Pragmatic

Scope of Managerial Economic

  • Demand Analysis and Forecasting
  • Production and Supply Analysis
  • Cost Analysis
  • Capital Management
  • Profit Management
  • Inventory Management
  • Pricing Decision
  • Business Policies and Practices

Objectives of Managerial Economics

  • To Integrate Economics Theory with Business Practice
  • To Minimize Risk and Uncertainty
  • To Apply Economic Concepts to Solve Business Problems
  • Make better Pricing Decisions
  • Optimum use of scarce Resources
  • Analysis of problems of the business
  • To make overall development of the business

Importance of Managerial Economic

  • Tools and Techniques for Better Decision Making
  • Solutions to the basic problems of business management
  • Formulating business policies
  • Cost Control
  • Price Determination
  • Data for analysis and forecasting
  • Business Planning
  • Profit Planning and Control
  • Inventory Management
  • Act as a guide to Managerial economist

Principles of Managerial Economics

  • Incremental Principle
  • Equal Marginalism Principle
  • Marginalism Principle
  • Time Perspective Principle
  • Discounting Principle
  • Opportunity Cost Principle

Types of Managerial Economics

  • Micro Economics
  • Macro Economics


This approach focuses on the economic behavior of individual firms, households, and consumers, and how they interact in various markets.

It examines how firms make decisions about pricing, production, and resource allocation to maximize their profits, and how consumers make decisions about buying goods and services based on their preferences and budgets.


This approach focuses on the economy as a whole, and how aggregate variables such as GDP, inflation, and unemployment affect the performance of individual firms.

It examines the role of government policies, such as fiscal and monetary policy, in stabilizing the economy and promoting growth.

Considering the style of applying economics, there are mainly three types of managerial economics which are the following;

  • Liberal managerialism
  • Normative managerialism
  • Radical managerialism

Advantages of Managerial Economics

  • Better Decision Making
  • Efficient Resource Allocation
  • Improved Profitability
  • Improved Planning
  • Better Communication

Better Decision Making: Managerial economics provides a structured and analytical approach to decision-making, which helps managers make better decisions by taking into account all the relevant economic factors.

Efficient Resource Allocation: Managerial economic helps in the efficient allocation of resources by analyzing the trade-offs between various inputs and outputs.

Improved Profitability: By using the principles of managerial economics, firms can identify new business opportunities and maximize their profits by optimizing their production, pricing, and marketing strategies.

Improved Planning: It provides a framework for forecasting and planning, which enables firms to prepare for future changes in the market and to respond quickly to unexpected events.

Better Communication: Economics provides a common language and framework for communication between different departments within an organization, which can improve coordination and collaboration.

Limitations of Managerial Economics

  • Limited Scope
  • Simplistic Assumptions
  • Data Availability
  • Dynamic Environment
  • Ethical Concerns

Limited Scope: Managerial economic is limited in scope as it only focuses on the microeconomic aspects of the firm and does not consider the broader macroeconomic factors that can affect the business environment.

Simplistic Assumptions: Economics relies on simplifying assumptions and models that may not accurately reflect the complex realities of the business environment.

Data Availability: It relies heavily on quantitative data, and the accuracy of the analysis is dependent on the availability and quality of the data.

Dynamic Environment: The business environment is constantly changing, and the assumptions and models used in managerial economics may not be able to keep up with these changes.

Ethical Concerns: The use of economic analysis in decision-making may raise ethical concerns, particularly when it comes to issues such as pricing and resource allocation.

Scroll to Top