Managerial economics (sometimes referred to as business economics) is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units. As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis and correlation, Lagrangian calculus (linear). If there is a unifying theme that runs through most of managerial economics it is the attempt to optimize business decisions given the firm's objectives and given constraints imposed by scarcity, for example through the use of operations research and programming.
Almost any business decision can be analyzed with managerial economics techniques, but it is most commonly applied to: * Risk analysis - various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk. * 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.
Definition
“Managerial economics is the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management”
Decisions made by managers are crucial to the success or failure of a business. Roles played by business managers are becoming increasingly more challenging as complexity in the business world grows. Business decisions are increasingly dependent on constraints imposed from outside the economy in which a particular business is based—both in terms