Managerial Economics(By M.A.D)

MANAGERIAL ECONOMICS

A note compiled by M.A.D 

Address: Kismayo University(KU), Kismayo- Somalia

In the following pages of my work i will be in short saying something about mangerial economics as a discipline and its role in solving the modern business problems.

Introduction To Managerial Economics

Managerial economics being a subject studied separately these days arose from the need to solve many economic problems that need to be analyzed using economic reasoning, logic, tools and techniques and economic theories. The subject also known as business economics is the application of economic theories and concepts to business practice. 

Definitely, the need for the subject came because of the growing complication of business decision-making due to shifting market conditions and business environment. As we all know changes are very frequent in this world today particularly economic trends are increasingly affecting businesses. There was a time when businesses were owned, administered, and totally framed by private individuals. Big corporations, mergers, insurance companies and multi national firms were not in place and businesses were simply functioning with out fierce market competition between them. Later industrial business has enormously changed in size. Growing complexity of business world can be credited to growth of large-scale industries, growth of large variety of industries, diversification of industrial products, expansion and diversification of business activities.  

Therefore, because of this growth personal experience and training can no longer solve magnitude economic challenges today. 

However the need for economic logic, concepts, theories and tools of economic analysis in the process of business decision-making has inevitably increased. These have been developed to analyze and forecast market behavior because a pertinent business decision requires a clear understanding of market conditions, nature and degree of competition, market fundamentals and business environments. 

Decisions made by managers are crucial to the success or failure of such businesses. Roles played by business managers are becoming increasingly more challenging as complexity in the business world grows. Business decisions are increasingly dependent on constraints imposed from outside the economy in which a particular business is based-both in terms of production of goods as well as the markets for the goods produced. The impact of rapid technological change on innovation in products and processes, as well as in marketing and sales techniques, figures prominently among the factors contributing to the increasing complexity of the business environment. Moreover, because of increased globalization of the marketplace, there is more volatility in both input and product prices. The continuous changes in the economic and business environment make it ever more difficult to accurately evaluate the outcome of a business decision. In such a changing environment, sound economic analysis becomes all the more important as a basis of decision-making. Managerial economics is a discipline that is designed to provide a solid foundation of economic understanding in order for business managers to make well-informed and well-analyzed managerial decisions.

DEFINITION OF MANAGERIAL ECONOMICS

So what is managerial economics? Many different definitions have been given but most of them involve the application of economic theory and methods to business decision-making. As such it can be seen as a means to an end by managers, in terms of finding the most efficient way of allocating their scarce resources and reaching their objectives. However, the definition above might seem to be a little narrow in scope when applied to the case study involving global warming. This situation involves governments, non-profit objectives, non-monetary costs and benefits, international negotiations and a very long-term time perspective, with an associated high degree of uncertainty. Therefore it needs to be clarified that managerial economics can still be applied in such situations. The term 'business' must be defined very broadly in this context: it applies to any situation where there is a transaction between two or more parties. Of course this widens the scope of the concept beyond the bounds that many people find comfortable: it includes taking someone on a date, playing a game with one's children in the park, going to confession in a church, asking a friend to help out at work, agreeing to look after a colleague's cat while they are away, taking part in a neighborhood watch scheme. In all cases, costs and benefits occur, however intangible, and a decision must be made between different courses of action.