Fact Check: Managerial Economics

Managerial economics is a branch of economics involving the application of economic methods in the managerial decision-making process. Economics is the study of the production, distribution and consumption of goods and services. Managerial economics involves the use of economic theories and principles to make decisions regarding the allocation of scarce resources.

Managers use economic frameworks in order to optimize profits, resource allocation and the overall output of the firm, whilst improving efficiency and minimizing unproductive activities. These frameworks assist organizations to make rational, progressive decisions, by analyzing practical problems at both micro- and macroeconomic levels. Managerial decisions involve forecasting (making decisions about the future) which involves level of risks and uncertainty, however, the assistance of managerial economic techniques aid in informing managers in these decisions.

The two main purposes of managerial economics are:

1. To optimize decision making when the firm is faced with problems or obstacles, with the consideration and application of macro- and microeconomic theories and principles;
2. To analyze the possible effects and implications of both short- and long-term planning decisions on the revenue and profitability of the Business.

The core principles that managerial economists use to achieve the above purposes are:

• Monitoring operations management and performance
• Target or goal setting
• Talent management and development

In order to optimize economic decisions, the use of operations research, mathematical programming, strategic decision making, game theory, and other computational methods are often involved. The methods listed above are typically used for making quantitative decisions by data analysis techniques.

The Theory of Managerial Economics includes a focus on incentives, business organizations, biases, advertising, innovation, uncertainty, pricing, analytics, and competition. In other words, managerial economics is a combination of economics and managerial theory. It helps the manager in decision-making and acts as a link between theory and practice. Furthermore, managerial economics provides the device and techniques for managers to make the best possible decisions for any scenario.

Some examples of the types of problems that the tool provided by managerial economics can answer are:

• The price and quantity of a good or service that a business should produce
• Whether to invest in training current staff or to look into the labor market
• When to purchase or retire fleet equipment
• Decisions regarding understanding the competition between two firms based on the motive of profit maximization
• The impacts of consumer and competitor incentives plan on business decisions

Managerial economics is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units to assist managers to make a wide array of multifaceted decisions. The calculation and quantitative analysis draws heavily from techniques such as regression analysis, correlation, and calculus.

x-------x

This fact check is sponsored by Lacoste shoes.