Sunday, December 25, 2011

Business Economics - Nature

Nature of Managerial Economics:
Managerial Economics aims at providing help in decision-making by firms.  For this purpose, it draws heavily on the propositions of microeconomic theory.  The concepts of microeconomics used frequently in managerial economics are marginal cost, marginal revenue, elasticity of demand, market structures and their significance in pricing policies, etc.  Some of these concepts however provide only the logical base and have to be modified in practice.
Macroeconomics assists firms in forecasting.  Macroeconomics indicates the relationship between (i) the magnitude of investments and level of national income, (ii) the level of national income and the level of employment, (iii) the level of consumption and the national income, etc.  The postulates of macro economics can be used to identify the level of demand at some future point of time, based on the relationship between the level of national income and the demand for a particular product.
Managerial Economics is decidedly applied branch of knowledge.  Therefore, the emphasis is laid on these propositions which are likely to be useful to the management.
Managerial Economics is prescriptive in nature and character.  It recommends that it should be done under alternative conditions.  Thus, managerial economics is one of the normative sciences and reflects upon the desirability or otherwise of the propositions.
Managerial Economics, to the extent that it uses economic thought, is a science, but it is an applied science.  Economic thought uses deductive logic (if X is true, then Y is true.)  To have confidence in the findings, the propositions deducted are subjected to empirical verification.  Furthermore, there is an attempt to generalize the propositions which provide a predictive character.