Managerial economics applies economic ideas to business decisions. Here is what it means, its three approaches and the questions it helps a manager answer.
Managerial economics is the branch of management studies that uses economic ideas to make business decisions and solve business problems. It draws on both microeconomics and macroeconomics, and its central concern is using scarce resources well.
Think of it as the meeting point of business and economics. It gives managers the information they need for demand projections, capital management, pricing, profit planning, cost analysis and production planning.
A manager using it looks at the factors inside the firm and the forces outside it, then applies micro and macro tools to the problem at hand. So it is a practical subject: economic reasoning is put to work on real business questions, and not only to fix today's problems but also to help the firm grow and last.
Writers usually describe three approaches to managerialism:
The economist N. Gregory Mankiw organises the study of economics around three questions, and each of them matters to a manager too:
A firm that understands the answers is far better placed to succeed.
It is usually described as: