Managerial Economics

Managerial economics (sometimes referred to as business economics), is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units. As such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis and correlation, Lagrangian calculus (linear). If there is a unifying theme that runs through most of managerial economics it is the attempt to optimize business decisions given the firm's objectives and given constraints imposed by scarcity, for example through the use of operations research and programming.

Almost any business decision can be analyzed with managerial economics techniques, but it is most commonly applied to:
1. Risk analysis - various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk.
2. Production analysis - microeconomic techniques are used to analyse production efficiency, optimum factor allocation, costs, economies of scale and to estimate the firm's cost function.
3. Pricing analysis - microeconomic techniques are used to analyse various pricing decisions including transfer pricing, joint product pricing, price discrimination, price elasticity estimations, and choosing the optimum pricing method.
4. Capital budgeting - Investment theory is used to examine a firm's capital purchasing decisions.

At universities, the subject is taught primarily to advanced undergrads. It is approached as an integration subject. That is, it integrates many concepts from a wide variety of prerequisite courses. In many countries it is possible to read for a degree in Business Economics which often covers managerial economics, financial economics, game theory, business forecasting and industrial economics.


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