Managerial economics is, perhaps, the youngest of all the social sciences. Since it originates from Economics, it has the basis features of economics, such as assuming that other things remaining the same. This assumption is made to simplify the complexity of the managerial phenomenon under study in a dynamic business environment so many things are changing simultaneously. This set a limitation that we cannot really hold other things remaining the same. In such a case, the observations made out of such a study will have a limited purpose or value. Managerial economics also has inherited this problem from economics.
The other features of managerial economics are explained as below:
1. Microeconomics in nature: Managerial economics is concerned with finding the solutions for different managerial problems of a particular firm. Thus, it is more close to microeconomics.
2. Operates against the backdrop of macroeconomics: The macroeconomics conditions of the economy are also seen as limiting factors for the firm to operate. In other words, the managerial economist has to be aware of the limits set by the macroeconomics conditions such as government industrial policy, inflation and so on.
3. Normative economics: Economics can be classified into two broad categories normally. Positive Economics and Normative Economics. Positive economics describes %u201C what is%u201D i.e., observed economic phenomenon. The statement %u201C Poverty in India is very high%u201D is an example of positive economics. Normative economics describes %u201Cwhat ought to be%u201D i.e., it differentiates the ideals form the actual. Ex: People who earn high incomes ought to pay more income tax than those who earn low incomes. A normative statement usually includes or implies the words %u201Eought%u201F or %u201Eshould%u201F. They reflect people%u201Fs moral attitudes and are expressions of what a team of people ought to do.
4. Prescriptive actions: Prescriptive action is goal oriented. Given a problem and the objectives of the firm, it suggests the course of action from the available alternatives for optimal solution. It does not merely mention the concept, it also explains whether the concept can be applied in a given context on not. For instance, the fact that variable costs as marginal costs can be used to judge the feasibility of an export order.
5. Applied in nature: %u201EModels%u201F are built to reflect the real life complex business situations and these models are of immense help to managers for decision-making. The different areas where models are extensively used include inventory control, optimization, project management etc. In managerial economics, we also employ case study methods to conceptualize the problem, identify that alternative and determine the best course of action.
6. Offers scope to evaluate each alternative: Managerial economics provides an opportunity to evaluate each alternative in terms of its costs and revenue. The managerial economist can decide which is the better alternative to maximize the profits for the firm.
7. Interdisciplinary: The contents, tools and techniques of managerial economics are drawn from different subjects such as economics, management, mathematics, statistics, accountancy, psychology, organizational behavior, sociology and etc.
8. Assumptions and limitations: Every concept and theory of managerial economics is based on certain assumption and as such their validity is not universal. Where there is change in assumptions, the theory may not hold good at all.
The contingency approach to management suggests that there is no particular best way to manage. It further suggests that management activities such as planning, controlling, leadership, or organization are completely dependent on the circumstances and the environment.