While managerial economics is the application of Economic Theory and Decision Sciences in solving the managerial problems faced by the society. We could see the relationship between economics and managerial economics when we use economic analysis in making business decisions for choosing the best choice for the organization in achieving the objective of the organization.
Managerial economics uses the theories of economics and the methodologies of the decision sciences for managerial decision-making. Managerial decision-making arises due to the problems faced by the organizations in achieving its objectives. Managerial decision problems like the amount of products that is needed to be reduced, the type or kind of product to be produced, the technique or method of producing a product, the price of product, strategies needed to maximize the profit of the organization and other problems have to be solved in order to achieve the organization’s goals.
Opportunity cost or also known as the economic cost is the value forgone in order to pursue another alternative which is the second best alternative. For example, an accountant decided to quit his job to open his own bookstore. The salary that he would had obtain if he did not open a bookstore is called an opportunity cost.
