Relationship between Management Economics and Other Subjects
Relationship between Management Economics and Other Subjects
(i) Management Economics and Operations Research- Management Economics and Operations Research both are related to effective decision making. Both are related to the best way of achieving goals. After the Second World War, many researches were done to solve the complex problems of planning and allocation of resources.
The relationship between Management Economics and Operations Research can be highlighted with reference to some important problems of Management Economists which were solved with the help of Operational Research techniques. These are allocation, competition, sequencing and cost problems.
Operations Research- This field is used in Management Economics to find the best possibilities. Linear programming is helpful in decision making in business and industry, as it can help in solving problems like facilitating determination of machine program, distribution of goods and optimum product mix etc.
Resources are limited. There are problems related to distribution of man, machine and goods. Such problems can be solved with the help of Operational Research techniques. Since operational research is a slow and extensive process and requires quick decision making by the manager, managerial economics here acts as an important tool in making quick decisions.
(ii) Managerial Economics and Mathematics- Mathematics is also a useful tool which is closely related to managerial economics because managerial economics is of measuring nature. One of its important functions is to estimate and predict economic factors for decision making. Mathematics expands the scope of analysis for managerial economics. The main branches of mathematics which are commonly used by managerial economics are geometry, algebra and calculus. Mathematical concepts like logarithms, exponentials, vectors etc. are often used.
(iii) Relationship of managerial economics with statistics- Managerial economics also has a close relationship with statistics. Many principles of statistics are largely used in making good decisions.
Statistics are extensively used by managerial economists. Managerial economics aims at evaluating past economic activity and estimating future action. This is essential for correct assessment and decision making. For example, if a firm wants to fix the price of its product, it needs to know the production conditions and current demand and also the changes that are taking place or are going to take place in them, so that an appropriate pricing policy can be decided.
The most useful aspect of statistics is that it can deal with uncertain situations, which firms often face. Managerial economics relies heavily on the theory of probability to deal with all such problems and take decisions.
(iv) Managerial economics and decision making theory- Decision making theory has been developed to solve the problem of choice in decision making under uncertainty. This theory is almost new and has a significant role in managerial economics. Usually, one of the objectives of economic theories is to earn profit (which should be maximum) but in reality, due to uncertainty in the field of management, there are many objectives in decision theory.
In the uncertainty of the real world of management, where the problem is complex and there is a high level of uncertainty and quick decision making is necessary, the theory becomes an essential part of managerial economics.
