MB 0026 Set 1

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MANAGERIAL ECONOMICS -MB0026
MBA -1 SEM
Assignment – Set 1
L. Megha Syam 510925494
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Q1. Define Managerial Economics and discuss its importance and
functions.
Managerial economics is a science that deals with the application of various
economic theories, principles, concepts and techniques to business management
in order to solve business and management problems.
It deals with the practical application of economic theory and methodology to decision making
problems faced by private, public and non profit making organizations.
The same idea has been expressed by Spencer and Seigelman in the following
words. “Managerial Economics is the integration of economic theory with business practice for
the purpose of facilitating decision making and forward planning by the management ”.
According to Mc Nair and Meriam, “Managerial economics is the use of economic modes of
thought to analyze business situation”.
Brighman and Pappas define managerial economics as,”the application of economic
theory and methodology to business administration practice ”. Joel dean is of the opinion
that use of economic analysis in formulating business and management policies
is known as managerial economics.
Managerial economics is a highly specialized and new branch of economics developed in recent
years. It highlights on practical application of principles and concepts of economics in to business
decision making process in order to find out optimal solutions to managerial problems. It fills up the
gap between abstract economic theory and managerial practice. It lies midway between economic
theory and business practice and serves as a connecting link between the two.
Features of managerial Economics
1. It is a new discipline and of recent origin
2. It is a highly specialized and separate branch by itself.
3. It is basically a branch of microeconomics and as such it studies the
problems of only one firm in detail.
4. It is mainly a normative science and as such it is a goal oriented and
prescriptive science.
5. It is more realistic, pragmatic and highlights on practical application of
various economic theories to solve business and management problems.

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6. It is a science of decision making. It concentrates on decision making
process, decision models and decision variables and their relationships.
7. It is both conceptual and metrical and it helps the decision maker by providing measurement of various
economic variables and their interrelationships.
8. It uses various macro-economic concepts like national income, inflation, deflation, trade cycles etc to
understand and adjust its policies to the environment in which the firm operates.
9. It also gives importance to the study of noneconomic variables having
implications of economic performance of the firm.
10.It uses the services of many other sister sciences like mathematics, statistics, engineering, accounting,
operation research and psychology etc to find solutions to business and management problems.
Importance of the study of Managerial Economics
Managerial Economics does not give importance to the study of theoretical economic concepts. Its
main concern is to apply theories to find solutions to day –today practical problems faced by a firm.
 Significance of the study Managerial Economics
1. It gives guidance for identification of key variables in decision making
process.
2. It helps the business executives to understand the various intricacies of business and managerial
problems and to take right decision at the right time.
3. It provides the necessary conceptual, technical skills, toolbox of analysis and techniques of thinking and
other such most modern tools and instruments like elasticity of demand and supply, cost and revenue,
income and expenditure, profit and volume of production etc to solve various business problems.
4. It is both a science and an art.
5. It helps the business executives to become much more responsive,

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6. It is a science of decision making. It concentrates on decision making
process, decision models and decision variables and their relationships.
7. It is both conceptual and metrical and it helps the decision maker by providing measurement of various
economic variables and their interrelationships.
8. It uses various macro-economic concepts like national income, inflation, deflation, trade cycles etc to
understand and adjust its policies to the environment in which the firm operates.
9. It also gives importance to the study of noneconomic variables having
implications of economic performance of the firm.
10.It uses the services of many other sister sciences like mathematics, statistics, engineering, accounting,
operation research and psychology etc to find solutions to business and management problems.
Importance of the study of Managerial Economics
Managerial Economics does not give importance to the study of theoretical economic concepts. Its
main concern is to apply theories to find solutions to day –today practical problems faced by a firm.
Significance of the study Managerial Economics
1. It gives guidance for identification of key variables in decision making
process.
2. It helps the business executives to understand the various intricacies of business and managerial
problems and to take right decision at the right time.
3. It provides the necessary conceptual, technical skills, toolbox of analysis and techniques of thinking and
other such most modern tools and instruments like elasticity of demand and supply, cost and revenue,
income and expenditure, profit and volume of production etc to solve various business problems.
4. It is both a science and an art.
5. It helps the business executives to become much more responsive, realistic and competent to face the
ever changing challenges in the modern business world.
6. It helps in the optimum use of scarce resources of a firm to maximize its
profits.
7. It also helps in achieving other objectives a firm like attaining industry
leadership, market share expansion and social responsibilities etc.
8. It helps a firm in forecasting the most important economic variables like demand, supply, cost, revenue,
price, sales and profit etc and formulate sound business polices.
9. It also helps in understanding the various external factors and forces which affect the decision making of
a firm. Thus, it has become a highly useful and practical discipline in recent years to analyze and find
solutions to various kinds of problems in a systematic and rational manner.