UNIT 1 THE NATURE AND SCOPE OF
MANAGERIAL ECONOMICS
MODULE - 1
UNIT 1
THE NATURE AND SCOPE OF
MANAGERIAL ECONOMICS
The Nature and Scope of
Managerial Economics
NOTES
Structure
1.0
1.1
1.2
1.3
Introduction
Unit Objectives
What is Managerial Economics?
Why Do Managers Need to Know Economics?
1.3.1 How Economics Contributes to Managerial Functions
1.4
1.5
Business Decisions and Economic Analysis
The Scope of Managerial Economics
1.5.1 Microeconomics Applied to Operational Issues
1.5.2 Macroeconomics Applied to Business Environment
1.6
1.7
Some Other Topics in Managerial Economics
The Gap Between Theory and Practice and the Role of
Managerial Economics
1.8 Summary
1.9 Answers to ‘Check Your Progress’
1.10 Exercises and Questions
1.11 Further Reading
1.0
INTRODUCTION
The emergence of managerial economics as a separate course of management studies
can be attributed to at least three factors: (a) growing complexity of business decisionmaking process due to changing market conditions and business environment,
(b) consequent upon, the increasing use of economic logic, concepts, theories and tools
of economic analysis in the process of business decision-making, and (c) rapid increase
in demand for professionally trained managerial manpower. Let us take a look at how
these factors have contributed to the creation of ‘managerial economics’ as a separate
branch of study.
The business decision-making process has become increasingly complex due to the evergrowing complexity of the business world. There was a time when business units (shops,
firms, factories, mills, etc.) were set up, owned and managed by individuals or business
families. Big industries were few and the scale of business operation was relatively small.
The managerial skills acquired through traditional family training and experience were
sufficient to manage small and medium-scale business. Although a large part of private
business is...