Difference Between Managerial Economics & Microeconomics

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Difference Between Managerial Economics & Microeconomics
Understanding the difference between managerial and microeconomics. (Jupiterimages/Photos.com/Getty Images)

Microeconomics and managerial economics are both subsets of economy. Economy is the study of production, distribution and consumption of a society. It is a field that uses theories from math, science, sociology, politics and business to understand why people spend money, what they spend money on, and how businesses can succeed in this society.

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Managerial Economics

Managerial economics, also called business economics, is a subset of macroeconomics. This application of economics strategy uses concepts from math and science, and helps business makes decisions regarding finances, sales, profit and loss. Essentially, managerial economics is used to make important decisions. Managerial economics is used in business strategy, which means deciding the direction and scope of the business in the long-term. In other words, how can this business perform better, make more money, and stay relevant, and what resources are needed to achieve these goals?

Uses of Managerial Economics

Businesses are able to evaluate the financial side of their business using math formulas, such as Lagrangian calculus. Using these formulas, businesses are able to evaluate and assess their production values, marketing approaches, finance stability, sales, profits and revenues. After the company has fully assessed their business' economic health, they can decide if selling stock, laying off employees, hiring new employees, increasing sales or decreasing sales will help their business to succeed.

Tools Used in Managerial Economics

Based in math and science, managerial economics uses formulas that enable the business to analyse decisions. Tools used in managerial economics include opportunity cost, incremental principle, principle of the time perspective, discounting principle and equi-marginal principle.

Microeconomics

Microeconomics focuses on how small firms and individuals make decisions about resources, services and goods. This aspect of economy studies how behaviours and decisions affect supply and demand, price setting, sales, profit and revenue. Microeconomics asks the question: "How do people deal with their money, their time and their resources?" The analysis of market failure and competition is also discussed within microeconomics.

Uses of Microeconomics

The primary use of microeconomics is to assess and evaluate supply and demand. Supply and demand are important when discussing labour theory, public finance, employee wages, monopolies and price control. Businesses and firms will need to understand supply and demand theory so they can effectively set the prices of their goods. They will need a competitive, yet low price, to obtain the greatest profit available.

Tools Used in Microeconomics

Supply and demand, statistics, wage information, profit, revenue, job loss and retention are tools used in microeconomics. Math and science are also used to reach conclusions about supply, demand and revenue.

Differences

Microeconomics focuses on individuals, and is concerned with how and why people make decisions. Managerial economics looks at what has been done in large businesses and how changes can be made to help the business perform better. While both types of economic branches use similar tools, the reasons and ways in which these tools are used are different. Microeconomists are looking to assess why individuals and business do what they do, while managerial economists focus on business changes and strategy.

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