Economics is a science that equally needs both a sound theory and a productive practice. But how to bridge the logical gap between them? For these purposes, the discipline "Managerial Economics" was introduced. In the article we will describe it in detail, present relevant definitions, purpose, course features, features of the industry and its relationship with other sciences.
Historical development
Management 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 of students of secondary and higher educational institutions, whose future specialty is somehow related to business administration. It is equally useful for lawyers and doctors, economists and engineers.
It will be wrong to reduce the principles of a managerial economy to commercial use only. 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 it?
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.
- The scope of economic (mainly macroeconomic) theory to the problem of the optimal distribution of various economic resources.
- One of the areas of macroeconomics. An approach requiring integration, integration of principles and methods of a number of functional areas: finance, management, accounting, marketing.
- Discipline, which is designed to connect economic theory with the science of making responsible decisions. 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 not directly related to profit.
Is there anything in common?
Common items
In how experts determine the managerial decision in the economy, we can distinguish its common features. What unites definitions? Wherever there are alternative ways of distributing resources, a managerial economy will reveal the most successful alternative.
In addition, you can meet such common features:
- A discipline that can be directly used to improve the quality of management decisions.
- The fundamentals of managerial economics are ways of applying economic, macroeconomic theory for the practical solution of pressing problems.
- The branch of science is associated with the development of optimal solutions for the distribution of resources between competing areas of activity. This applies not only to the private, but also to the public sector.
About the discipline
Let's look at the names of the courses. "Management Economics and Management", "Economics for the Manager" and so on. The main meaning behind the word "economy". Here she acts as the science of making the right decisions in conditions of limited resources.
But what about the 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. Indeed, here, dwelling on a specific option, the manager thereby refuses at once all other possibilities.
A simple example. The company produces computers. Its leader decided to send the vast majority of revenue for advertising and product promotion. But income is limited. Therefore, their mass can no longer be allowed to finance innovative developments.
Thus, “Methods of a managerial economy” is a training course within which methods and tools are studied that allow a manager to make effective managerial decisions under conditions of limited available resources.
The purpose of the discipline is to "nurture" an effective manager, leader, manager. But who is he considered in this context?
Setting goals and highlighting restrictions
Let's move on to the theory and workshop "Management Economics". The goal of the course is an effective manager.
The first thing that defines it is the ability to set goals for activities and allocate limited resources. To make a rational, due to reality decision, first of all, you need to clearly understand the goals of the planned activity. Different goals lead to different decisions.
The achievement of the goal is directly affected by the restrictions that arise on 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 should develop a plan whose goal is to maximize financial revenues to the company, while choosing the strategy with the lowest risk. This restriction makes it difficult to get the highest profit. The goal of maximization will require the manager to make the optimal decision on the cost of the product, its volume, production technology, the mass of resources used, reaction to the actions of competitors, and so on.
Characteristic 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 profit volume that is the main signal for all participants in economic relations. It stimulates the adoption of the most optimal decision on the allocation of limited resources.
- Ability to understand the successful motivation of employees.
- Knowledge of the fundamentals of the functioning of markets.
- The ability to well understand the time value of the money supply.
- Proficiency in marginal analysis (the ability to conduct analysis according to limit indicators).
Practical examples
To help students better understand managerial decisions in the economy, they are often offered various practical tasks that real managers face in their work.
Here is one example. The student should introduce himself as a manager of a leading corporation manufacturing 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 release only the latest technology today or will we work on the models that have not yet been "tested" by a wide consumer? How many computers should be produced per month? Given what form the final cost? How many workers need to be hired? What system of remuneration to choose for them? How to simultaneously provide high labor productivity and high motivation of workers? How to build interaction with competitors, what losses may result from their certain actions?
To make informed decisions on each of the issues raised, you need to have the necessary information. Identify "gaps" in their knowledge and qualitatively eliminate them. After all this, process, analyze the available information and based on this make a responsible decision.
Manager work
Another type of practical tasks within the discipline is to teach the future manager to work in collaboration with other departments of the company. The manager of a large company should be able to request from other departments the information necessary for him to make this or that decision. Correctly analyze, systematize these data.
For example, the legal department provides the head with all the possible legal consequences of his decision. Accounting, in turn, will notify you of the tax consequences of the action, give an estimate of all costs that may be associated with the decision. The marketing department will guide you about the market where you have to work to implement the solution. Specialists in finance will analyze all possible ways (basic and alternative) of obtaining funds for providing money for a new project.
And the manager’s task is to reduce all this diverse, heterogeneous information into a single and harmonious whole. Then, analyze the data obtained and make a responsible decision on its basis. To do this, it is not enough just to study the information provided. The leader must have relevant knowledge in the field of economics, marketing, finance, etc.
Communication 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.
- The study of functional areas.
- Analytical tools.
We will get to know them in more detail in order to study the connection with analysis in the managerial economy.
Economic theory
Economic theory is traditionally divided into two parts:
- Microeconomics. Directly examines the behavior of the seller and buyer on the market.
- Macroeconomics. He studies the set of basic economic terms: gross product, national employment, national income, national consumption.
That is, macroeconomics focuses precisely on the collective results of actions of market participants, millions of economic decisions. Microeconomics, on the other hand, focuses on the behavior of individuals in this stream.
It is microeconomics that makes the decisive contribution to the managerial economy. She operates with such valuable information for the manager as demand theory, consumer behavior, cost and production analysis, pricing, long-term spending budget, profit planning and so on.
However, a company cannot exist apart. As well as control the international and national economic situation. But the latter strongly affects the ability to obtain certain limited resources, their cost. This applies to materials, raw materials, labor, equipment, machinery and so on. Of great importance is the cost, availability of financing, interest rate.
National and international conditions very significantly affect the company's ability to sell its products. Therefore, macroeconomics also has a direct impact on the managerial economy.
Economic Methodology and Accounting Principles
We continue to represent other areas of science important to the manager. Managerial economics relies heavily 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 organization of production.
As for the economic methodology, two approaches are used - descriptive and normative models. They can be used both together and separately.
Mathematical economics
In this field of knowledge, economic decisions are presented in mathematical form. This allows you to see those sides of the problem of the managerial economy, which annoyingly misses a descriptive approach.
In some cases, it is mathematical modeling that sets the boundaries of analysis and eliminates inappropriate alternatives.
