Nature and Scope of Managerial Economics

Publishing of Joel Dean‘s book “Managerial Economics” in 1951, fetched immense popularity across the globe that addresses all the economic theories, tools, and analytical models which can be used to address specific business problems. According to Jean Dean “Managerial economics represents how economic concepts analysis facilitates better policy formation. Mc Gutgan and Moyer defined “managerial economics as the application of economic theory to solve decision-making problems faced by both private and public institutions. C. I. Savage & T. R. Small observed managerial economics is concerned with business efficiency. 

M. H. Spencer and Louis Siegel man simulate “managerial economics are the collective efforts of economic theories with the business activities to support the decision-making process and planning the management. From all the above-illustrated definitions, it is quite clear managerial economic deals with the economic aspects of decision-making or nexus with economics prospectus. Thereby, managerial economics is defined in other words as techniques knowledge or practices, or body of knowledge which gives useful economical stances to make a useful business strategy as a unit of management. 

E. F. Brigham and J. L. Pappas say, “managerial has been longstanding designed to provide useful aspects of economic theories and it’s a real-time application in administrative practices. 

Nature of Managerial Economics

Throughout the quest for business activities, managers subtly considered numerous options to reach workable conclusive evidence on the basis of surrounding variables in place. Perhaps, managerial economics is the youngest among all social sciences, however as it originates from the economics background, it is greatly assumed managerial economics is meant to solve the complex managerial decision-making process when so many changes occur simultaneously. Managerial economics lays down sets of principles that not only help the managers in making effective business decisions even at times support in acknowledging the driven external and internal forces that impact the business performance.

It is generally assumed that buyers act rationally carried away by advertisements, brand loyalties, or incentives, therefore consumer innate behavior will be more rational rather than realistic assumptions. Unfortunately, no such tool could describe consumer behavior. Rather than making such an assumption, managerial economics is usually considered to make sustainable profits from the business and attain maximum business growth.

Managerial economics relies on decision science likewise traditional economics concepts to analyze business problems and suggest alternative courses of action for better business performance and growth. In given below segments, offered features by managerial economics have been listed below-

A comprehensive evaluation of microeconomics theories

Managerial economics tends to be concerned with finding the best solution for business problems, as a result, it is closer to microeconomics.

Microeconomic is pragmatic

Macroeconomic conditions are appeared to be the limited factors hindering business activities, In other words, managerial economics should analyze the macroeconomic barriers and be quite aware of the factors limiting business activity such as government policies, industrial policies, or inflation

Normative assessments

Norman F. Dufty determined in leadership and management managerial economics is connected to the value judgments which focus on what should or ought to be. It is a mainly deterministic rather descriptive approach to evaluate any decisions of the business from a lens of both negative and positive impact. It implies only those business has to be undertaken which is favorable for the business thus avoiding which are unfavorable.

Deterministic or prescriptive action

Given the aims or objectives or problems, it suggests optimal solutions after evaluating the quest of course of actions that also explains whether the managerial theories could be applied in real context or not.

Applied Nature

Models have been built in this scenario to represent the complex business problems derives from real-time incidents. The distinct areas where the models can be extensively used such as inventory control, project management, operational management, and so on.


The contents and tools applicable in managerial economics are drawn from multiple disciplines such as statistics, management, economics, accountancy, sociology, and so on.

Alternative solution

It provides opportunities to weigh down the cost-effectiveness of alternative solutions abundantly meant to maximize the profits from the decision-making


Every concept demonstrated under the managerial theories is based on the assumption it could be not universally valid. Where changes are needed, theories may not provide effective statements.

Scope of managerial economics

As discussed above, managerial economics provides strategic tools to solve business problems as well as helps in making managerial decisions rationally. It is evolutionary science and pragmatics that involves both environmental and operational issues related to planning thus elevating its scope-

Resources allocation

Like earlier traditional theories concerned with optimal business solution approaches, managerial economics assure an optimal level of output by maximizing profits taken by marginal care analysis. Herein case linear programming is applied to resolve business issues.

Estimating demand

To cater to the respective demands, it is significant to estimate the market demand to serve products at the right moment along with making the right decision, An application of software like SPSS, and SAS forecasting demands after applying the managerial economics concepts become easier

Cost analysis

Pricing policy amid cost analysis is crucial for selling out business propositions in the competitive marketing sphere. Managerial economics also deals with the cost benefits analysis

Solving or handling inventory queuing problems.

Efficient management of inventory requires accurate estimation of the inventory stocks of raw materials and finished goods over time. The decision is generally based on the demand and supply conditions for instance planning or hiring laborers to control or handle inventories

Developing competitive strategies

The pricing strategy is based on the marketing structure which could be oligopolies, monopolies, or monopolistic. Pricing theories underpin managerial economics and help in understanding how to set pricing to align with the demand and anticipate major changes required to become a major player

Profits analysis

Profit assurance is a vital component of business success, using managerial economics concepts a manager can reduce uncertainty and estimate the profits.

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