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Discuss What Managerial Economics Is All About

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Introduction Managerial Economics and Business economics are the two terms, which, at times have been used interchangeably. Of late, however, the term Managerial Economics has become more popular and seems to displace progressively the term Business Economics. The discovery of managerial economics as a separate course in management studies has been attributed to three major factors: i) The growing complexity of business decision-making processes, because of changing market conditions and the globalization of business transactions. ii) The increasing use of economic logic, concepts, theories, and tools of economic analysis in business decision-making processes. iii) Rapid increase in demand for professionally trained managerial manpower. …show more content…

3. R Davis and S Chang, Principles of managerial Economics (Prentice-Hall, N.J., 1986), ch.3. 4. E Mansfield (ed.), Managerial Economics and Operations Research, (New York: W.W. Norton and Co., Inc., 1966), 11.

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Applications of Economics to Managerial Economics The application of economics to managerial economics or the integration of economic theory with business practice, as Spencer and Siegelman have put it, has the following aspects:i) Estimating economic relationships, viz., measurement of various types of elasticities of demand such as price elasticity, income elasticity, cross-elasticity, promotional elasticity, cost-output relationships, etc. The estimates of these economic relationships are to be used for purposes of forecasting. ii) Predicting relevant economic quantities, e.g. profit, demand, production, costs, pricing, capital, etc., in numerical terms together with their probabilities. As the business manager has to work in an environment of uncertainty, future is to be predicted so that in the light of the predicted estimates, decision making and forward planning may be possible. iii) Using economic quantities in decision making and forward planning, that is, formulating business policies and, on that basis, establishing business plans for the future pertaining to profit, prices, costs, capital, etc. The nature of economic forecasting is such that it indicates the degree of probability of various possible outcomes, i.e. losses or gains as a

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