Managerial Economics Relationship with Other Subjects

Many new subjects have evolved in recent years due to the interaction among basic disciplines. While there are many such new subjects in natural and social sciences, managerial economics can be taken as the best example of such a phenomenon among social sciences. Hence it is necessary to trace its roots and relationship with other disciplines.

1. Relationship with economics

The relationship between managerial economics and economics theory may be viewed form the point of view of the two approaches to the subject Viz. Microeconomics and Marco Economics. Microeconomics is the study of the economic behaviour of individuals, firms and other such micro-organization. Managerial economics is rooted in Micro Economic theory. Managerial Economics makes use to several Micro Economic concepts such as marginal cost, marginal revenue, elasticity of demand as well as price theory and theories of market structure to name only a few. Macro theory on the other hand is the study of the economy as a whole. It deals with the analysis of national income, the level of employment, general price level, consumption and investment in the economy and even matters related to international trade, Money, public finance, etc.

The relationship between managerial economics and economics theory is like that of engineering science to physics or of medicine to biology.  Managerial economics has an applied bias and its wider scope lies in applying economic theory to solve real life problems of enterprises. Both managerial economics and economics deal with problems of scarcity and resource allocation.

2. Management theory and accounting

Managerial economics has been influenced by the developments in management theory and accounting techniques. Accounting refers to the recording of pecuniary transactions of the firm in certain books. A proper knowledge of accounting techniques is very essential for the success of the firm because profit maximization is the major objective of the firm.

Managerial Economics requires a proper knowledge of cost and revenue information and their classification. A student of managerial economics should be familiar with the generation, interpretation and use of accounting data. The focus of accounting within the firm is fast changing from the concepts of store keeping to that if managerial decision making, this has resulted in a new specialized area of study called “Managerial Accounting”.

3. Managerial Economics and mathematics

The use of mathematics is significant for managerial economics in view of its profit maximization goal long with optional use of resources. The major problem of the firm is how to minimize cost, how to maximize profit or how to optimize sales. Mathematical concepts and techniques are widely used in economic logic to solve these problems. Also mathematical methods help to estimate and predict the economic factors for decision making and forward planning.

Mathematical symbols are more convenient to handle and understand various concepts like incremental cost, elasticity of demand etc., Geometry, Algebra and calculus are the major branches of mathematics which are of use in managerial economics. The main concepts of mathematics like logarithms, and exponential, vectors and determinants, input-output models etc., are widely used. Besides these usual tools, more advanced techniques designed in the recent years viz. linear programming, inventory models and game theory fine wide application in managerial economics.

4. Managerial Economics and Statistics

Managerial Economics needs the tools of statistics in more than one way. A successful businessman must correctly estimate the demand for his product. He should be able to analyses the impact of variations in tastes. Fashion and changes in income on demand only then he can adjust his output. Statistical methods provide and sure base for decision-making. Thus, statistical tools are used in collecting data and analyzing them to help in the decision making process.

Statistical tools like the theory of probability and forecasting techniques help the firm to predict the future course of events. Managerial Economics also make use of correlation and multiple regressions in related variables like price and demand to estimate the extent of dependence of one variable on the other. The theory of probability is very useful in problems involving uncertainty.

5. Managerial Economics and Operations Research

Taking effective decisions is the major concern of both managerial economics and operations research. The development of techniques and concepts such as linear programming, inventory models and game theory is due to the development of this new subject of operations research in the postwar years. Operations research is concerned with the complex problems arising out of the management of men, machines, materials and money.

Operation research provides a scientific model of the system and it helps managerial economists in the field of product development, material management, and inventory control, quality control, marketing and demand analysis. The varied tools of operations Research are helpful to managerial economists in decision-making.

6. Managerial Economics and the theory of Decision making

The Theory of decision-making is a new field of knowledge grown in the second half of this century. Most of the economic theories explain a single goal for the consumer i.e., Profit maximization for the firm. But the theory of decision-making is developed to explain multiplicity of goals and lot of uncertainty.

As such this new branch of knowledge is useful to business firms, which have to take quick decision in the case of multiple goals. Viewed this way the theory of decision making is more practical and application oriented than the economic theories.

7. Managerial Economics and Computer Science

Computers have changed the way of the world functions and economic or business activity is no exception.  Computers are used in data and accounts maintenance, inventory and stock controls and supply and demand predictions. What used to take days and months is done in a few minutes or hours by the computers. In fact computerization of business activities on a large scale has reduced the workload of managerial personnel. In most countries a basic knowledge of computer science, is a compulsory programme for managerial trainees.

To conclude, managerial economics, which is an offshoot traditional economics, has gained strength to be a separate branch of knowledge. It strength lies in its ability to integrate ideas from various specialized subjects to gain a proper perspective for decision-making.

A successful managerial economist must be a mathematician, a statistician and an economist. He must be also able to combine philosophic methods with historical methods to get the right perspective only then; he will be good at predictions. In short managerial practices with the help of other allied sciences.