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.