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.

Certain other expressions like economic analysis for business decisions and economics of business management have also been used instead of managerial economics but they are not so popular. Sometimes expressions like ‘Economics of the Enterprise’, ‘Theory of the Firm’ or ‘Economics of the Firm’ have also been used for managerial economics. It is, however, not appropriate t use theses terms because managerial economics, though primarily related to the economics of the firm, differs from it in the following respects:
  • First, ‘Economics of the Firm’ deals with the theory of the firm, which is a body of economic principles relating to the firm alone. Managerial economics on the other hand deals with the, application of the same principles to business.
  • Secondly, the term ‘Economics of the firm’ is too simple in its assumptions whereas managerial economics has to reckon with actual business behaviour, which is much more complex.
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