Managerial Economics (ME) can be broadly defined as the study of economic theories, logic and tools of economic analysis which are used in the process of business decision making. Many literature identifies “economics” as a social science, which studies human behavior in relation of available resource consumption, hence study of managerial economics is identified timely with growing complexities of business decision making.
At present, the study of ME follows the approach of neo-classical economics, where it identifies several features such as small government, rational man (doesn’t wish to loose in any way), optimization, economic efficiency, dynamic general equilibrium and the use of quantitative techniques. The study also accounts individuals, family, households, firms, financial intermediaries, government, international organizations and NGOs as economic agents.
Managerial Economics identifies various approaches to analyze management problems of a business, among which, revenue of the firm, costs of the firm, profit maximization, economic profits, opportunity cost and present value stands significant.
In Managerial Economics, value of a firm is determined by,Where, value of i depends on involved risk of the firm and conditions in capital market, value of TR depends on demand and forecasting, pricing and new product development, value of TC depends on production techniques, cost functions and process development.
And finally adding to the introduction, the scope of ME includes, demand analysis & forecasting, resource allocation, production & cost analysis, competitive analysis, pricing and strategic planing.