How does Managerial Economics Differ from Economics?

  • Whereas management economics focuses on applying economic concepts to business issues, economics focuses on the principles themselves.

  • Unlike managerial economics, which is primarily micro-economic in nature, economics is both macro-economic and micro-economic in nature.

  • Managerial economics, despite its micro nature, is focused on the company and has little to do with an individual’s financial issues. Microeconomics, on the other hand, is a field of economics that deals with both individual and business economics.

  • Distribution theories, such as wages, interest, and profit, are also dealt with in microeconomics as a branch of economics, but in managerial economics, profit theory is primarily used; other distribution theories are not used as much in managerial economics; thus, the scope of economics is wider than that of managerial economics given the simplified model, whereas managerial economics modifies and enlarges the scope of economics.

  • Managerial economics adapts, changes, and reformulates economic models to meet the unique conditions and assist the specific problem-solving process. As a result, economics provides a simpler model, which management economics changes and expands.

  • Managerial economics incorporates a combination of complexities assumed away in economic theory, such as multi-product nature of manufacturing, behavioral constraints, environmental aspects, legal constraints, resource availability constraints, and so on, thereby embodying a combination of complexities assumed away in economic theory and then attempts to solve real-life, complex business problems.

Managerial economics is like Engineering Economics, the working side of economic initiatives or activities. How the underlying or invisible is doing the manifestation of the visible. For example, what guides a person to take a decision on responses to environmental demands like, locating his store, or for a company to decide on its product portfolio based on objectives of maximizing profitability, or how warehouses can be located for optimal logistics delivery which can prevents stockouts and customer dissatisfaction levels, how production plans are initiated, how taxes create demand outcomes, how markups or transfer pricing works based on the invisible elasticity of demand, how demand function affected by wealth effect and price effect, how market structure forms for various types of markets as pure competition, monopolistic competition, oligopoly, monopoly and so on. Economic theory on the other hand, deals in Macro economics.