Managerial economics: features, characteristics, types

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Economics is a science that equally needs both sound theory and effective practice. But how to overcome the logical gap between them? For these purposes, the discipline "Managerial Economics" was introduced. In the article, we will characterize it in detail, present the current definitions, purpose, features of the course, features of this industry and its connection with other sciences.

Historical Development

Managerial economics as a branch of fundamental science appeared relatively recently - in the 40s of the last century. As we have already mentioned, the main goal of its implementation is to bridge the gap between practical and theoretical economics.

What about today? This discipline is an integral part of the curriculum for students of secondary and higher educational institutions, whose future speci alty is one way or another connected with business administration. It is equally useful for lawyers and physicians, economists and engineers.

Wrongwill reduce the principles of managerial economics only to application in the commercial sphere. Knowledge of this branch of science will be useful to the head of absolutely any organization who wants to rationally reduce the cost of maintaining a business or institution.

What is this?

How is managerial economics defined in the scientific world? Even today it is impossible to give a concrete answer. Here are three of the most common points of view.

• Scope of application of economic (mainly macroeconomic) theory to the problem of optimal distribution of various economic resources.
• One of the areas of macroeconomics. An approach that requires unification, integration of principles and methods of a number of functional areas: finance, management, accounting, marketing.
• A discipline that aims to link economic theory with the science of responsible decision making. A managerial decision in the economy is to ensure the development of rational actions in the private sector, and in government departments, and in a sector that is not directly related to making a profit.

Is there anything in common?

Common elements

In the way experts define a managerial decision in the economy, one can single out its common features. What unites definitions? Wherever there are alternative ways to distribute resources, managerial economics will identify the best alternative.

Besides this, you can find such common features:

• Discipline that can be directly used to improve the quality of a managerial decision.
• Fundamentals of managerial economics are ways to apply economic, macroeconomic theory to practical solutions to pressing problems.
• The branch of science is connected with the development of optimal solutions for the distribution of resources between competing areas of activity. This applies not only to the private sector, but also to the public sector.

About the academic discipline

Let's look at the names of the courses. "Managerial economics and management", "Economics for a manager" and so on. The main meaning behind the word "economy". Here it is the science of making the right decisions in the face of limited resources.

What about resources? In this case, they call everything necessary to achieve the goal. If their reserves are limited, then the importance of making the right decision increases to the limit. After all, here, dwelling on a specific option, the manager thereby immediately refuses all other possible ones.

A simple example. The company is engaged in the production of computers. Its leader decided to send the vast majority of income to advertising and product promotion. But income is limited. Therefore, their mass can no longer be used to finance innovative developments.

Thus, "Methods of managerial economics" is a training course that explores the ways and tools that allowmanager to make effective managerial decisions under conditions of limited available resources.

The purpose of discipline is to "nurture" an effective manager, leader, manager. But who is considered in this context?

Setting goals and highlighting constraints

Let's move on to the theory and practice "Managerial Economics". The goal of the course is an effective manager.

The first thing that defines him is the ability to set goals for activities and allocate limited resources. In order to make a rational, reality-based decision, one must first of all have a clear idea of the goals of the planned activity. Different goals lead to different decisions.

Achievement of the set goal is directly affected by the restrictions that arise along this path. Each of the divisions of the company may have its own limitations.

An example from the practice of managerial economics will help here. For example, the marketing department was given the task of increasing the company's sales as much as possible. The finance department must come up with a plan whose goal is to maximize the company's financial return while choosing a strategy with the least risk. This limitation makes it difficult to get the highest profit. The goal of maximization will require the manager to make an optimal decision on the cost of production, its volume, production technology, the mass of resources used, the reaction to the actions of competitors, and so on.

Characteristics of a successful manager

In addition to the above, an effective manager is characterized by the following:

• Understanding the essence of profit (both accounting and economic), its significance. It is the volume of profit that is the main signal for all participants in economic relations. It stimulates the adoption of the most optimal decision on the distribution of limited resources.
• The ability to understand the successful motivation of employees.
• Knowing the fundamentals of markets.
• Being good at understanding the time value of the money supply.
• Knowledge of marginal analysis (the ability to analyze by marginal indicators).

Practical examples

In order for students to better understand managerial decision-making in the economy, they are often offered various practical tasks that real managers face in their work.

Here is one example. The student must present himself as a manager of a leading corporation producing computer equipment. Of course, in the process of work, such a manager makes a lot of responsible decisions. Will we produce components for our equipment ourselves or will we purchase them from third-party suppliers? Will we produce only up-to-date equipment or will we work on models that have not yet been "tested" by a wide consumer? How many computers should be produced per month? Taking into account what to form the final cost? How many workers need to be hired? What system of remunerationchoose for them? How to ensure high labor productivity and high motivation of employees at the same time? How to build interaction with competitors, what losses can be caused by certain of their actions?

To make informed decisions on each of the issues raised, you need to have the necessary information. Identify "gaps" in your knowledge and qualitatively eliminate them. After all this, process, analyze the available information and, based on this, make a responsible decision.

Manager's work

Another type of practical task within the discipline is to teach the future manager to work in cooperation with other departments of the company. The manager of a large company must be able to request from other departments the information necessary for him to make a particular decision. Correctly analyze and systematize this data.

For example, the legal department provides the manager with all possible legal consequences of his decision. The accounting department, in turn, will notify the tax consequences of the action, give an estimate of all costs that may be associated with the decision. The marketing department will orient you about the market where you have to work to bring the solution to life. Finance specialists will analyze all possible ways (main and alternative) to obtain funds to finance the new project.

And the manager's task is to bring all this diverse, heterogeneous information into a single andharmonious whole. Then analyze the data obtained and, based on it, make a responsible decision. To do this, it is not enough just to study the information presented. The leader must have relevant knowledge in the field of economics, marketing, finance, etc.

Link with other industries

The study of managerial economics does not stand apart from the economy as a whole. This industry is inextricably linked with the following branches:

• Economic theory.
• Economic methodology.
• Research of functional areas.
• Analytical tools.

Let's get to know them in more detail to explore the connection with analysis in managerial economics.

Economics

Economic theory is traditionally divided into two parts:

• Microeconomics. Directly examines the behavior of the seller and the buyer in the market.
• Macroeconomics. Studying a set of basic economic terms: gross product, national employment, national income, national consumption.

That is, macroeconomics focuses precisely on the collective results of the actions of market participants, millions of economic decisions. Microeconomics, on the other hand, focuses on the behavior of individuals in this flow.

It is microeconomics that makes the decisive contribution to managerial economics. It operates with such valuable information for the manager as demand theory, consumer behavior, cost and production analysis, pricing, budget.long-term spending, profit planning, etc.

However, a company cannot exist in isolation. As well as to control the international and national economic situation. But the latter greatly affects the possibility of obtaining certain limited resources, their cost. This applies to materials, raw materials, labor, equipment, mechanisms, and so on. Also of great importance is the cost, availability of financing, interest rate.

The national and international environment has a significant impact on a company's ability to market its products. Therefore, macroeconomics also has a direct impact on managerial economics.

Economic methodology and accounting principles

Continue to introduce other areas of science important to the manager. Managerial economics is largely based on economic methodology and a number of its analytical tools. It is inextricably linked with the principles of accounting (managerial and financial), personnel management, marketing and production organization.

As for economic methodology, two approaches are used - descriptive and normative models. They can be used together or separately.

Mathematical economics

In this area of knowledge, economic decisions are presented in mathematical form. This allows you to see those sides of the problem of managerial economics that unfortunately misses a descriptive approach.

In some cases, it is the mathematicalmodeling sets the boundaries of analysis and weeds out unreasonable alternatives.

Econometrics

Statistical methods are used to study economic models. For example, they can find the relationship between the demand for a product and the consumer's income, the cost of the product, the cost of promotion, and the number of potential customers.

Econometric methods are especially useful in managerial economics here:

• Identification of factors affecting demand.
• Determining the dependence of demand upon change, the interaction of these factors.

Managerial economics is that area of fundamental economics that should be known to every leader of both commercial and non-commercial organizations. Its main feature is more practical than theoretical science. Here, the future manager learns how to solve real problems in his planned activities.