Role of Managerial Economics

A managerial economist helps the management by using his analytical skills and highly developed techniques in solving complex issues of successful decision-making and future advanced planning.

Managerial economics, or business economics, is a division of microeconomics that focuses on applying economic theory directly to businesses. The application of economic theory through statistical methods helps businesses make decisions and determine strategy on pricing, operations, risk, investments and production. The overall role of managerial economics is to increase the efficiency of decision making in businesses to increase profit.

The role of economics in management can be summarized as follows:

  1. Study of economic pattern at macro-level and analysis its significance to the organization and its functioning
  2. Examine how the changing environment is profitable to ones organization in the best possible way
  3. Helps is making sound decision by choosing the best available alternative in  case of choices.
  4. Many managerial economic tools and analysis models are used to help make investing decisions both for corporations and savvy individual investors. These tools are used to make stock market investing decisions and decisions on capital investments for a business.
  5. Assists businesses in determining pricing strategies and appropriate pricing levels for their products and services. Some common analysis methods are price discrimination, value-based pricing and cost-plus pricing
  6. Assists the management in the decisions pertaining to internal functioning of a firm such as changes in price, investment plans, type of goods /services to be produced, inputs to be used, etc…
  7. Analyse changes in macroeconomic indicators such as national income, population, business cycles, and their possible effect on the firm’s functioning.
  8. The most significant function of a managerial economist is to conduct a detailed research on industrial market.
  9. He also provides management with economic information such as tax rates, competitor’s price and product, etc. They give their valuable advice to government authorities as well.
  10. 10. Uncertainty exits in every business and managerial economics can help reduce risk through uncertainty model analysis and decision-theory analysis. Heavy use of statistical probability theory helps provide potential scenarios for businesses to use when making decisions.
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