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MICRO-ECONOMIC in

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Managerial economics, or business economics, is a division of microeconomics that focuses on applying economic theory directly to businesses. The application of economic theory through statistical methods helps businesses make decisions and determine strategy on pricing, operations, risk, investments and production. The overall role of managerial economics is to increase the efficiency of decision making in businesses to increase profit.

Managerial Economics is Different than Economics

Pricing Managerial economics assists businesses in determining

pricing strategies and appropriate pricing levels for their products and services. Some common analysis methods are price discrimination, value-based pricing and cost-plus pricing.

Elastic vs. Inelastic Goods Economists can determine price sensitivity of products

through a price elasticity analysis. Some products, such as milk, are consider a necessity rather than a luxury and will purchase at most price points. This type of product is considered inelastic. When a business knows they are selling an inelastic good, they can make marketing and pricing decisions easier.

Operations and Production Managerial economics uses quantitative methods to analyze

production and operational efficiency through schedule optimization, economies of scale and resource analyses. Additional analysis methods include marginal cost, marginal revenue and operating leverage. Through tweaking the operations and production of a company, profits rise as costs decline.

Investments Many managerial economic tools and analysis models are used

to help make investing decisions both for corporations and savvy individual investors. These tools are use to make stock market investing decisions and decisions on capital investments for a business. For example, managerial economic theory can be used to help a company decide between purchasing, building or leasing operational equipment.

Risk Uncertainty exits in every business and managerial

economics can help reduce risk through uncertainty model analysis and decision-theory analysis. Heavy use of statistical probability theory helps provide potential scenarios for businesses to use when making decisions.

Theory of Demand

Theory of Cost

Theory of Production

Theory of Exchange of Price Theory

Theory of Profit

Theory of capital and Investment