Difference Between Managerial Economics And Economics

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The difference between managerial economics and economics can be understood with the help of the following points:

  • Managerial economics involves application of economic principles to the problems of a business firm whereas; economics deals with the study of these principles only. Economics ignores the application of economic principles to the problems of a business firm.
  • Managerial economics is micro-economic in character, however, Economics is both macro-economic and micro-economic.
  • Managerial economics, though micro in character, deals only with a firm and has nothing to do with an individual’s economic problems. But microeconomics as a branch of economics deals with both economics of the individual as well as economics of a firm.
  • Under microeconomics, the distribution theories, viz., wages, interest and profit, are also dealt with. Managerial economics on the contrary is mainly concerned with profit theory and does not consider other distribution theories. Thus, the scope of economics is wider than that of managerial economics.
  • Economic theory assumes economic relationships and builds economic models. Managerial economics adopts, modifies and reformulates the economic models to suit the specific conditions and serves the specific problem solving process. Thus, economics gives the simplified model, whereas managerial economics modifies and enlarges it.

Economics involves the study of certain assumptions like in the law of proportion where it is assumed that “The variable input as applied, unit by unit is homogeneous or identical in amount and quality”. Managerial economics on the other hand, introduces certain feedbacks. These feedbacks are in the form of objectives of the firm, multi-product nature of manufacture, behavioral constraints, environmental aspects, legal constraints, constraints on resource availability, etc. Thus managerial economics, attempts to solve the complexities in real life, which are assumed in economics. this is done with the help of mathematics, statistics, econometrics, accounting, operations research, etc.

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