Contribution of Quantitative Techniques to Managerial Economics

Contribution of Quantitative Techniques to Managerial Economics

Mathematical Economics and Econometrics are utilised to construct and estimate decision models useful in determining the optimal behaviour of a firm. The former helps to express economic theory in the form of equations while the latter applies statistical techniques and real world data to economic problems. Like, regression is applied for forecasting and probability theory is used in risk analysis. In addition to this, economists use various optimisation techniques, such as linear programming, in the study of behaviour of a firm. They have also found it most efficient to express their models of behaviour of firms and consumers in terms of the symbols and logic of calculus.
Thus, Managerial Economics deals with the economic principles and concepts, which constitute ‘Theory of the Firm’. The subject is a synthesis of economic theory and quantitative techniques to solve managerial decision problems. It is rnicro¬economic in character. Further, it is normative since it makes value judgements, that is, it states what goals a firm should pursue. Fig. 1.1 summarises our discussion of the principal ways in which Economics relates to managerial decision making.

Managerial Economics plays an equally important role in the management of non-business organisations such as government agencies, hospitals and educational institutions. Regardless of whether one manages the ABC hospital, Eastman Kodak or College of Fine Arts, logical managerial decisions can be taken by a mind trained in economic logic.

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