Managerial Economics Overview: Definition, Nature and Types

Managerial Economics Overview

No business can ever be complete without economics. And managerial economics is one of the most integral parts of any business. Basically, it is the practical implementation of theoretical economics. When one applies the theories of micro and macroeconomics in business, we call it managerial economics. It proves to be extremely useful for firms for daily business operations as well as long-term perspectives.

Let’s understand the basic definition of managerial economics now!

Definition Of Managerial Economics

Managerial economics is that branch of economics that helps you leverage different theories, concepts and methodologies of theoretical economics in order to solve day-to-day business problems. It offers practical solutions by offering blending business practices with economic theories. When you leverage managerial economics the right way, you can bridge the gap between logic and policy-based conflicts.

Firms prefer using managerial economics in order to resolve day-to-day operational issues, for instance, marketing, production, cost, demand etc. Also, they can be used efficiently for futuristic planning.

Nature Of Managerial Economics

Managerial economics belongs to the science group. Here’s why!

  • Science is the systematic study of knowledge. And it involves methodological observations as well. Similarly, managerial economics is also the science of choosing the right options and making smart decisions.
  • Science involves carrying out multiple experiments and going through trials and errors to find out the right solution and reach an apt conclusion. On a similar note, policies pertaining to managerial economics are also developed based on continuous training and testing.
  • Just like science, managerial economics policies are also accepted universally.

Characteristics Of Managerial Economics

  • Microeconomics: Managerial economics is used to look into issues and problems of specific organisations. It does not focus on the entire economy. And that’s why it is called an intrinsic part of microeconomics.
  • Macroeconomics: External factors always impact the performance and operations of any organisation. And these factors can be kept under control and monitored by using managerial economics. For instance, managers of firms use macroeconomic theories like economic reforms, market conditions etc. and blend them with managerial economics to get the right solution for the organisation.
  • Art and Science: When it comes to managerial economics, one should use their creative abilities to the best of their capacity. Logical thinking and creative abilities are the two core components of managerial economics. A successful managerial economist is one who has the necessary skills to use his artistic skills and knowledge for accomplishing the objective of the organisation.

On the other hand, you can consider managerial economics a science as well, as it requires accurate application of different techniques, methods and principles.

  • Management oriented: You can consider managerial economics as a tool that will help you with solving business-related difficulties. Applying this technique helps you with prompt decision making, policy creation and accomplishment of goals.
  • Multi-disciplinary: You would be amazed to know that managerial economics derives its principles and policies from different streams and disciplines such as mathematics, accounting, human resource, production and marketing. Together, they create an efficient solution to manage the issues of the organisation.

Types Of Managerial Economics

Yes, managerial economics have different types. The reason behind this categorisation is the difference in the perception of managers. While some, customer satisfaction is their ultimate priority. While for others, it is efficient production can be the ultimate goal. Hence, it is necessary that we categorise managerial economics into following types:

  • Normative managerialism: Each and every decision which is taken by the manager will be normal and realistic in nature. The decisions will be made based on real-life experiences. It will involve practices such as forecasting, marketing, supply, product designs and demand and so on.
  • Liberal managerialism: When it comes to decision-making, the market will always be a democratic and free place. You need to offer multiple options to the customers so that they can make a smart choice. Organisations are required to keep upgrading their norms and policies as per the demand and expectations of the target audience. In case they fail to do so, the chance of success gets reduced significantly. This entire process is known as liberal managerialism.
  • Radical managerialism: In this type of managerial economics, you need to formulate revolutionary solutions. When conventional solutions do not work out, you need to go for radical solutions. The manager needs to have special skillsets and logical thinking abilities so that they come up with unique and impactful solutions. It should be taken into consideration that radical managerialism always prioritises customer expectations and demand over business profits and ROI.

Wrapping up!

If any firm wishes to be successful in the long run, then it has to come up with solutions that are rational as well as practical. By blending in different types of managerial economics, managers are required to take significant decisions for the benefit of the firm. By leveraging managerial economics, managers can actually understand the nerve of the market and act accordingly.

This note clearly sums up the basic definition, nature, characteristics, and different types of managerial economics. By now, you must have understood the intricacies of the subject matter. Implement the same in your business to witness significant growth and development of your firm as well as customer base.

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