Managerial Economics

Lecture 1 – Scope and Nature of Managerial Economics

1.1 - Defining Managerial Economics

• Refers to the use of economic theory (micro and macro) and the tools of analysis of decision science (mathematical economics and econometrics) to examine how an organization can achieve its aims and objectives most efficiently.

• Microeconomics – Is the study of decisions of individual people and businesses and the interaction of these decisions:

• Price & quantities of individual goods and services.

• Effects of government regulation & taxation on prices and quantities of goods and services produced.

• Macroeconomics - Is the study of the national economy and the global economy.

• Effects of taxation and government spending on the economy and is measured through jobs, labour, output, income etc…

• Effects of money and interest rates.

• Mathematical Economics – Is used to formalize the economic models postulated by economic theory.

• Econometrics – applies statistical tools (regression analysis) to real world data to estimate models postulated by economic theory and forecasting.

• Managerial economics combines or applies economic tools and techniques to business and administrative decision making using micro, macro, mathematical and econometric models.

• Prescribes rules for improving managerial decisions and public policy.

• Integrates and applies microeconomic theory and methods to decision making problems faced by private, public, and not-for-profit organizations.

• Managerial economics deals with microeconomic reasoning on real world problems such as pricing decisions selecting the best strategy in different competitive environments.

1.2 - Relationship of Managerial Economics to other fields of study.

• Managerial economics uses concepts and quantitative methods to solve managerial problems.

Management Decision Problems...