Answer to Question #48550 in Macroeconomics for ball

Question

“Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.

Answer 1

Managerial economics is a social science discipline that combines the economics theory, concepts and known business practices in order to make the process of decision making easy. It is a very useful concept for every manager that is planning for the future. This is so because it assists the managers to make rational decisions on various obstacles facing the firm. Most of the complex management decision facing a firm can be broken down in a series of logical solutions. A key area of managerial economics is the theory of a firm that entails the best mix of the scarce resources to maximize profits within the firm. Marginal benefits and cost analysis is also another broad area in managerial economics. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firm’s scarce resources.
Managerial economics as a science is useful to managers in making decisions relating to a firm’s customer’s base, competitors and strategic future decisions. A lot of mathematical concepts especially statistics and analytical tools are required because of the probabilistic nature of future decisions that the firm wants to make. Most people might ask the questions why study managerial economics while one can make decisions based on past data. It is a genuine question but it is not possible to make a conclusion merely on the bases of prior data because of the dynamic nature of the current market. We have seen a lot of unexpected events that have happened in the past that we never expected. One is the crash of major banks in the US and the current crisis in Greece.