Managerial Economics Importance

in Business Decision Making

Kings College

King's College, MBA - 2015

Importance
Managerial economics plays a significant role in the
business organizations. It is very much effective to the
management in decision making and forward planning
in relation to the internal operations of a business as it
gives clear understanding of market conditions as well
as analytical tools through which the competitions
prevailing in the markets can be studied, at the same
time the market behavior can be predicted.
It enables to analyze the information about the
business environment in which a business is managed.
It is meant to undertake systematic course of business
plans by making possible forecasts.
King's College, MBA - 2015

Importance contd..
Managerial economics contributes to the profitable growth of
business and effective solutions of the business problems by
changing the economic scenario into the feasible business
opportunities for business organizations while enabling managers
to optimize business decisions as well as involving them in the
activity of forward planning efficiently.
In the context of globalization, privatization, liberalization and a
highly competitive and dynamic performance of worldwide scenario
of economic activities, it helps in identifying various business and
managerial problems, their causes and consequences, and
suggests various policies and programs to overcome such
problems. It helps the business executives to become much more
responsive, realistic and competent to face the
ever changing challenges in the modern business world.
King's College, MBA - 2015

Importance can be highlighted

in point basis as:
Helpful in managing scarce resource efficiently
in the society
Helpful in formulating economic policy which
are meant for promoting efficiency in
production and welfare of the people
Helps estimate individual as well as market
demand and supply
Extremely important in making profit for a firm
by showing way out to calculate various types
of elasticity.
King's College, MBA - 2015

Importance contd..
Useful in overall forecasting of the
economic activities, and demand
forecasting by using various methods
like quantitative, barometric, inputoutput analysis etc.
Analyzes economies and diseconomies
of scale by estimating production
function in different time span.
King's College, MBA - 2015

Importance contd..
Highly useful in analyzing various types
of costs their nature, profit maximizing
output level and optimum level of
marginal cost and marginal revenue.
Helpful in identifying equilibrium level of
price and output in various markets like
perfect competition, monopoly,
monopolistic competition and oligopoly.
King's College, MBA - 2015

Importance contd..
Extremely important in identifying and
analyzing risks and uncertainty involved in
investment, helpful in selecting beneficial
project by performing various calculations like
NPV, IRR, Coefficient of Variation (CV) etc.
Helpful for any firm to earn profit by making
right investment decision with the help Payoff
matrix, and other various methods during risk
and uncertainty.
King's College, MBA - 2015

Importance contd..
On top of this
Helpful to figure out very important issues like

What to produce
Consumers choice

How to produce
Combination of labor and capital

Whom to produce
Distribution of income and population
King's College, MBA - 2015