Monday, August 11, 2008

Significance of Managerial Economics

As per Prof. Baumol - The three main contributions of economic theory to business economics are -
  • Building analytical models which help in recognising the structure of managerial problems and eliminating the minor details which might hamper decision making and distracts from the main issue.
  • ME can develop tools that may not directly apply to the issue but may enhance the abilities of Business analyst so that he can analyse the issue in much detail and provide a efficient solution.
  • ME provides clarity in various concepts in the business analysis that enables managers to avoid conceptual pitfalls.

Decision making in today's business involve a great amount of risk and uncertainty due to uncertain market forces like - policies, demand & supply, changing business environment, political changes etc. This uncertainty and risk in decision making can be greatly reduced if the business conditions and environment in which a business operates can be analyzed properly and the result is used in combination with economical theories.