- Category
- >Economics
- >Financial Analytics
Scope of Managerial Economics
- Ritesh Pathak
- Jan 18, 2021
- Updated on: Nov 11, 2024
We all know economics as a subject being equipped with various concepts. Apart from being a subject, concepts in economics also act as a tool that make organizations capable of surviving in a market.
Managerial economics is one such concept of economics. It can be defined as the incorporation of economic theories with business practices. This makes the process of decision making easy for organizations, as they can leverage the concepts of economics to change the dynamics of the market.
Managerial economics is considered as an essential scholastic field. This field of economics exhibits many characteristics that make it crucial for businesses. Managerial economics is in no way different from a science as it fulfills the criteria of being a science.
Managerial economics is used by organizations to solve multiple business problems. It is also reckoned as the scope of managerial economics. Ready to learn? Let’s get started about the scope of managerial economics and understand its use in the business world.
What is Managerial Economics?
Managerial economics is a subject that was first introduced by Joel Dean in 1951. This branch of economics is essentially concerned with the application of various economic concepts in decision-making.
We can also look at managerial economics as economics that is applied to problem-solving at the level of the firm. Managerial economics works as a bridge between economics theories and business practices. It is based on economic analysis for identifying problems, organizing information, and evaluating alternatives.
Resource allocation is a major challenge for any organization. Managerial economics involves an analysis of the allocation of the resources available to a firm, or a unit of management among the activities of that unit. It makes use of economic theories and concepts and assists managers to make rational decisions.
Also Read | The Nature and Scope of Managerial Economics
What is the Scope of Managerial Economics?
Managerial economics is a developing subject and its empirical and perspective nature widens its scope. It works as a tool for businesses that is used to understand the functioning of a market and also how to sustain themselves in an ever-changing market.
From analyzing demands and forecasting future demand to capital management, managerial economics provides help with almost everything. It also helps companies in Pricing Decisions, Policies, and Practices, cost and production analysis, and manage their profits.
Also Read | Corporate Governance
1. Demand Analysis and Forecasting
A firm relies on converting inputs into outputs and generates revenue from them. A clear and accurate estimation of demand ensures a continuous efficiency of the firm. Several external factors like price, income, affect the demand that need to be analyzed.
Upon analyzing these factors affecting the demand for a product, managers can decide on the production. After estimating the current demands, managers move ahead to predict future demands for the product. This is referred to as demand forecasting.
The ability to forecast demands allows the management to capitalize on the opportunities available and strengthen the market position of the firm. During the process of demand analysis, the management also gets to know about the external factors affecting it and hence work on them to nullify any negative effect.
2. Cost and Production Analysis
Cost Analysis is yet another function of Managerial economics. A company makes a profit in two ways: by increasing the demand or by reducing the cost. The determinants of assessing costs, the connection between cost and yield, the gauge of cost and benefit are indispensable to a firm.
Cost analysis is an important exercise for any company. A component of cost vulnerability always exists since all the elements deciding expenses are not generally known or controllable.
By taking the help of managerial economics, the management of a company identifies the factors causing a variation in costs. The company then uses the cost estimates in their decision making like pricing a product.
Production analysis is more of a physical exercise. It involves examining the factors of production, also known as inputs, and obtaining the best combination so as to get the least cost combination.
In case of price rise in the inputs, the management looks beyond and tries out the alternatives. The analysis helps them get instant ideas in such uncertain situations.
The topics covered during cost and production analysis are production function, least-cost combination of factor inputs, factor productiveness, returns to scale, cost concepts and classification, cost-output relationship, and linear programming.
Also Read | what is inflation
3. Pricing Decisions, Policies, and Practices
Among the 4Ps of marketing, Price finds an important place. For any firm, Pricing is a very important aspect of Managerial Economics as a firm's revenue earnings largely depend on its pricing policy. However, it is a bit challenging as other players are competing in the same price segment.
When pricing a product is done, the costs of production are also taken into account. Managerial economics helps the management to go through all the analyses and then price a product. In an oligopoly market condition, the knowledge of pricing a product is essential.
Scope of Managerial Economics
4. Capital Management
Every asset a business owns is known as its capital. Capital management thus becomes an important practice.
Planning and control of capital expenditures is a basic executive function. It involves the Equi-marginal principle. The prime objective is to ensure the sustainable use of capital. This means that funds should be kept at a bay when the managerial returns are less than in other uses.
The main topics dealt with during capital management are Cost of Capital, Rate of Return, and Selection of Projects.
5. Profit Management
A business firm is an organization designed with an intention to make profits and profits reflect the success of a company. After all the analyses, it all rolls down to profits.
To maximize profits a firm needs to manage certain things like pricing, cost aspects, resource allocation, and long-run decisions. This would mean that the firm should work from the very beginning, evaluate its investment decisions and frame the best capital budgeting policies. Profit management is considered as a difficult area of managerial economics.
The important aspects covered under this area are: nature and measurement of profit, profit policies, and techniques of profit planning like break-even analysis, cost-volume-profit analysis, etc.
Tools Used in Managerial Economics
Managerial economics makes use of different economic tools. The concepts of micro vs macroeconomics are applied for effective decision-making. Let’s explore the uses of some economic tools in managerial economics:
Economic Tools used in Managerial Economics
1. Opportunity Cost Principle
The Opportunity Cost Principle is concerned with the cost of the next best alternative of the good we are buying or opting for. The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else.
This principle has significant use in the process of decision making. Comparing the opportunity cost of one decision with another one gives an idea about the ideal decision.
2. Incremental Principle
Managerial economists make use of the incremental principle in the theories of consumption, product pricing, and distribution.
The principle states that the firm can maximize its profit if it is able to equate its marginal cost with the marginal revenue it generates. This helps managers decide on the expansion of their business, as it guides them to keep expanding until they reach the desired point: when marginal costs stand equal to the marginal revenue.
Also Read | Mutual funds
3. Principle of Time Perspective
The principle of time perspective states that a decision should take into account both the short and long-run effects on revenue and costs. It should maintain the right balance between the short-run and the long-run perspectives.
This principle helps managers in decision-making in output, prices, advertising, and expansion of the business.
4. Discounting Principle
The discounting principle states that if a decision taken today affects the cost and revenues of the future, those costs and revenues must be discounted today to avoid any comparisons with alternatives.
This economic tool is used by managers in deciding on the prices of the product and also in investment decisions.
5. Equi-Marginal Principle
The Equi marginal principle states that consumers will choose a combination of goods to maximize their total utility. The principle works on the basic idea of human nature. We tend to compare the utility of two products and opt for those which are efficient.
In a similar fashion, managers in a firm would want to utilize all their resources to the same extent.
Examples of Managerial Economics
Different tools of managerial economics can be used to achieve all the goals of a business organization in an efficient manner. The examples of managerial economics applications are:
-
Managerial economics finds its use in deciding the price of a product.
-
It also helps firms to decide on the manufacturing of a product or to purchase it from another manufacturer.
-
To decide on the production technique to be used in the manufacturing of a product
-
It also helps in inventory management. A firm can decide on the level of inventory it will maintain of a product or a raw material.
-
Decide on the advertising media and the intensity of advertising campaigns.
-
Managerial economics is used by businesses to decide on employment and training.
-
After all the analyses, the management looks at the opportunities for further investment.
Share Blog :
Or
Be a part of our Instagram community
Trending blogs
5 Factors Influencing Consumer Behavior
READ MOREElasticity of Demand and its Types
READ MOREAn Overview of Descriptive Analysis
READ MOREWhat is PESTLE Analysis? Everything you need to know about it
READ MOREWhat is Managerial Economics? Definition, Types, Nature, Principles, and Scope
READ MORE5 Factors Affecting the Price Elasticity of Demand (PED)
READ MORE6 Major Branches of Artificial Intelligence (AI)
READ MOREScope of Managerial Economics
READ MOREDifferent Types of Research Methods
READ MOREDijkstra’s Algorithm: The Shortest Path Algorithm
READ MORE
Latest Comments
janiferzara94578480249f84b50
May 18, 2025HOW I FINALLY GOT MY STOLEN FUNDS BACK // ALL THANKS TO THE HACK ANGELS RECOVERY EXPERT Have you lost money in a cryptocurrency or online investment scam? Are you desperately searching for help recovering your stolen funds? If you find yourself in such difficulty, get in touch with THE HACK ANGELS RECOVERY EXPERT to recover your scammed funds back. I was devastated when I lost over $975,000 in an investment trading company. I was down because the company refused to let me make withdrawals and kept asking for more money. My friend introduced me to THE HACK ANGELS RECOVERY EXPERT. I was able to recover my money back. They are knowledgeable professionals, and I am grateful for their assistance. You can contact them using the details below Email: support@thehackangels.com Website at www.thehackangels.com WhatsApp +1(520)200-2320 If you’re unsure of what to do next. In a few days, you will see the efforts they took to recover the money they stole from you.
janiferzara94578480249f84b50
May 18, 2025HOW I FINALLY GOT MY STOLEN FUNDS BACK // ALL THANKS TO THE HACK ANGELS RECOVERY EXPERT Have you lost money in a cryptocurrency or online investment scam? Are you desperately searching for help recovering your stolen funds? If you find yourself in such difficulty, get in touch with THE HACK ANGELS RECOVERY EXPERT to recover your scammed funds back. I was devastated when I lost over $975,000 in an investment trading company. I was down because the company refused to let me make withdrawals and kept asking for more money. My friend introduced me to THE HACK ANGELS RECOVERY EXPERT. I was able to recover my money back. They are knowledgeable professionals, and I am grateful for their assistance. You can contact them using the details below Email: support@thehackangels.com Website at www.thehackangels.com WhatsApp +1(520)200-2320 If you’re unsure of what to do next. In a few days, you will see the efforts they took to recover the money they stole from you.
janiferzara94578480249f84b50
May 18, 2025HOW I FINALLY GOT MY STOLEN FUNDS BACK // ALL THANKS TO THE HACK ANGELS RECOVERY EXPERT Have you lost money in a cryptocurrency or online investment scam? Are you desperately searching for help recovering your stolen funds? If you find yourself in such difficulty, get in touch with THE HACK ANGELS RECOVERY EXPERT to recover your scammed funds back. I was devastated when I lost over $975,000 in an investment trading company. I was down because the company refused to let me make withdrawals and kept asking for more money. My friend introduced me to THE HACK ANGELS RECOVERY EXPERT. I was able to recover my money back. They are knowledgeable professionals, and I am grateful for their assistance. You can contact them using the details below Email: support@thehackangels.com Website at www.thehackangels.com WhatsApp +1(520)200-2320 If you’re unsure of what to do next. In a few days, you will see the efforts they took to recover the money they stole from you.
bernardalexander6291710b164f68e4884
May 19, 2025So, I had some charge offs and collections from a few years ago because I went to jail for a while and had to stop paying for them. The rebuilding started around 8 months ago with chime and a capital one quicksilver secured card. I had $8k in student loan and $7k car loan. My scores were around 587-650 depending on the bureaus. Charge offs: Apple Card-$2k Capital one Platinum-$4k Discover-$1.5k. Collections: $2k. Even though bad credit reports prevented me from getting a loan on time and losing jobs, my happiness remains that the problem was given complete solution by this great hacker called PINNACLE CREDIT SPECIALIST; after explaining the problem I was facing to my best friend Charlotte, she decided to introduce me to Pinnacle Credit Specialist. Immediately I contacted them via: PINNACLECREDITSPECIALIST@GMAIL.COM and as well texted +1 (409) 331 2269. Through his great efforts my credit was fixed and all the negative marks on my report including the charge offs and collections were deleted, my scores were boosted from 587 to 800+ across the three credit bureaus. We had little problem at the process which they told me 6 days but it took 14 days. But they are very happy and comfortable with their services. I think the best steps to take is to contact them and Happy. Don’t forget to mention to them that I referred you.
Robert Alfred
May 20, 2025CRYPTO SCAM RECOVERY SUCCESSFUL – A TESTIMONIAL OF LOST PASSWORD TO YOUR DIGITAL WALLET BACK. My name is Robert Alfred, Am from Australia. I’m sharing my experience in the hope that it helps others who have been victims of crypto scams. A few months ago, I fell victim to a fraudulent crypto investment scheme linked to a broker company. I had invested heavily during a time when Bitcoin prices were rising, thinking it was a good opportunity. Unfortunately, I was scammed out of $120,000 AUD and the broker denied me access to my digital wallet and assets. It was a devastating experience that caused many sleepless nights. Crypto scams are increasingly common and often involve fake trading platforms, phishing attacks, and misleading investment opportunities. In my desperation, a friend from the crypto community recommended Capital Crypto Recovery Service, known for helping victims recover lost or stolen funds. After doing some research and reading multiple positive reviews, I reached out to Capital Crypto Recovery. I provided all the necessary information—wallet addresses, transaction history, and communication logs. Their expert team responded immediately and began investigating. Using advanced blockchain tracking techniques, they were able to trace the stolen Dogecoin, identify the scammer’s wallet, and coordinate with relevant authorities to freeze the funds before they could be moved. Incredibly, within 24 hours, Capital Crypto Recovery successfully recovered the majority of my stolen crypto assets. I was beyond relieved and truly grateful. Their professionalism, transparency, and constant communication throughout the process gave me hope during a very difficult time. If you’ve been a victim of a crypto scam, I highly recommend them with full confidence contacting: Email: Recovercapital@cyberservices.com Telegram: @Capitalcryptorecover Call/Text: +1 (336) 390-6684 Website: https://recovercapital.wixsite.com/capital-crypto-rec-1
tabithamaggard4b9bb79fcca004fda
May 24, 2025We wanted to purchase a house which we’ve been renting for 2 years and the landlord wanted to sell our house, and we would love to purchase it. After a brain tumor for my husband, the loss of a baby in December 2023, and cancer for last year our credit took a hit, and we wiped out our savings. Our Fico 8 was between 548 and 568. We had credit card debts, student loans and car loans. We needed at least 640 to get approved. We contacted this great credit specialist called PINNACLE CREDIT SPECIALIST. I can’t stop thanking them for the good they did on our credit. They helped us wipe all the negative items and raised our scores to 793. We have no debt now; they paid off all student loans and the final payment on our car loan. It’s been 2 weeks now since we purchased our home. The purchase price is 200k- the house is a heck of a deal, 3500 sq feet, 5 bedrooms, 2 bathrooms and sits half an acre in town. It only lacks a garage. I’m recommending them to anyone in need of credit assistance. Contact them via Email: PINNACLECREDITSPECIALIST@GMAIL.COM or call their mobile +1 (409) 331 2269.
Wendy Taylor
May 26, 2025My name is Wendy Taylor, I'm from Los Angeles, i want to announce to you Viewer how Capital Crypto Recover help me to restore my Lost Bitcoin, I invested with a Crypto broker without proper research to know what I was hoarding my hard-earned money into scammers, i lost access to my crypto wallet or had your funds stolen? Don’t worry Capital Crypto Recover is here to help you recover your cryptocurrency with cutting-edge technical expertise, With years of experience in the crypto world, Capital Crypto Recover employs the best latest tools and ethical hacking techniques to help you recover lost assets, unlock hacked accounts, Whether it’s a forgotten password, Capital Crypto Recover has the expertise to help you get your crypto back. a security company service that has a 100% success rate in the recovery of crypto assets, i lost wallet and hacked accounts. I provided them the information they requested and they began their investigation. To my surprise, Capital Crypto Recover was able to trace and recover my crypto assets successfully within 24hours. Thank you for your service in helping me recover my $647,734 worth of crypto funds and I highly recommend their recovery services, they are reliable and a trusted company to any individuals looking to recover lost money. Contact email Capitalcryptorecover@zohomail.com OR Telegram @Capitalcryptorecover Call/Text Number +1 (336)390-6684 his contact: Recovercapital@cyberservices.com His website: https://recovercapital.wixsite.com/capital-crypto-rec-1
michaelweston5481cee9b4b6ba14723
May 31, 2025I will forever keep thanking this amazing company called PINNACLE CREDIT SPECIALIST for the help. After I had a fatal accident 6 months ago, I went to apply for a loan to enable me to pay up my medical bills which didn’t come through because my credit score is in the 499 range coupled with student’s loan. Thanks to Grandma who mentioned how they helped Grandpa, and she encouraged me to hire Pinnacle Credit Specialist, to my great surprise, 14 days after I made an initial deposit, my scores were raised to 811, medical bills, student loans cleared, and they added good trade lines. I would love to recommend them to anyone in need of a credit repair service. Contact them via: pinnaclecreditspecialist@gmail.com or call +1 (400) 331-2269.
Robert Alfred
Jun 04, 2025CRYPTO SCAM RECOVERY SUCCESSFUL – A TESTIMONIAL OF LOST PASSWORD TO YOUR DIGITAL WALLET BACK. My name is Robert Alfred, Am from Australia. I’m sharing my experience in the hope that it helps others who have been victims of crypto scams. A few months ago, I fell victim to a fraudulent crypto investment scheme linked to a broker company. I had invested heavily during a time when Bitcoin prices were rising, thinking it was a good opportunity. Unfortunately, I was scammed out of $120,000 AUD and the broker denied me access to my digital wallet and assets. It was a devastating experience that caused many sleepless nights. Crypto scams are increasingly common and often involve fake trading platforms, phishing attacks, and misleading investment opportunities. In my desperation, a friend from the crypto community recommended Capital Crypto Recovery Service, known for helping victims recover lost or stolen funds. After doing some research and reading multiple positive reviews, I reached out to Capital Crypto Recovery. I provided all the necessary information—wallet addresses, transaction history, and communication logs. Their expert team responded immediately and began investigating. Using advanced blockchain tracking techniques, they were able to trace the stolen Dogecoin, identify the scammer’s wallet, and coordinate with relevant authorities to freeze the funds before they could be moved. Incredibly, within 24 hours, Capital Crypto Recovery successfully recovered the majority of my stolen crypto assets. I was beyond relieved and truly grateful. Their professionalism, transparency, and constant communication throughout the process gave me hope during a very difficult time. If you’ve been a victim of a crypto scam, I highly recommend them with full confidence contacting: Email: Recovercapital@cyberservices.com Telegram: @Capitalcryptorecover Call/Text: +1 (336) 390-6684 Website: https://recovercapital.wixsite.com/capital-crypto-rec-1
davidbundy167448cec9564e14ebd
Jun 06, 2025I (54M) just got my new credit score, and I need a place to crow about it. It’s 712. I’m over 700 for the first time in my life thanks to PINNACLE CREDIT SPECIALIST. My credit score was in the crapper for decades. My wife and I finally went through bankruptcy about 14 years ago. As is usually the case, we started getting credit repair offers a couple years after the bankruptcy by credit repair companies. We were very selective, and careful about not overextending, life did what life does, and we had ups and downs. I lost my job when the company for which I worked closed, and the gig economy only did so much for me. I helped open a business with a partner and sold my final stake in that business two years ago. With these ups and downs, my credit score had taken a few hits since the bankruptcy, but my wife and I have focused on eliminating debts, paying things off early whenever possible but still didn’t help boost our scores. Earlier this year we contacted PINNACLE CREDIT SPECIALIST and explained our predicaments to him which he assured us of helping us. He gave us a list of software to purchase, and in the last two months we came up with the money and purchased them. A few days after they started our credit repair journey I started seeing some changes in my credit report. I’ve been watching my scores regularly, and started to get a lot of credit offers when my score got close to 670. Recently I was surprised when a company with which I hold an account suggested I apply for their gold card. Per the disclaimers, they reserved the right to either decline credit or giver a lower tier card (e.g. silver, standard). I was shocked when I was approved. It has the largest credit line I have ever been offered. That, in and of itself, is likely what pushed me over the threshold into the low 700s, since it significantly changed the ratio of balances held to credit available. I think I’m still in shock. If you’re struggling to build your credit, especially after a rough stretch or bankruptcy, know that Pinnacle Credit Specialist is always there for you. They’ll get you there so easily without stress. Hit him up by email: PINNACLECREDITSPECIALIST@GMAIL.COM OR CALL +1 (409) 331-2269.