Managerial economics generally refers to the integration of economic theory with business practice. Economics provides tools, and managerial economics applies these tools to the management of business. In simple terms, managerial economics means the application of economic theory to the problem of management. Managerial economics may be viewed as economics applied to problem solving at the level of the firm.
- Managerial economics provides production and marketing rules that permit a company to maximize net profits once it has achieved growth objectives.
- It has applications in both profit and not-for-profit sectors such as government agencies, cooperatives, schools, hospitals, museums and similar institutions. For example, an administrator of a nonprofit hospital strives to provide the best medical care possible given limited medical staff, equipment, and related resources. Using the tools and concepts of managerial economics, the administrator can determine the optimal allocation of these limited resources.
- It describes the logic of this pricing practice with respect to the goal of profit maximization.
- In short, managerial economics helps managers arrive at a set of operating rules that aid in the efficient use of scarce human and capital resources. By following these rules, businesses, nonprofit organizations, and government agencies are able to meet objectives efficiently. To establish appropriate decision rules, managers must understand the economic environment in which they operate.
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