Term Paper



  Managerial economics has been defined as the application of economic methods in the managerial decision-making process. In other readings, managerial economics is regarded as the science of directing scarce resources to manage cost effectively. With that regard, managerial economics use economic theory for business and administrative decision making by helping managers to recognise how economic forces affect organization and describes the economic consequences of managerial behaviours while in the end provide solution to the problem at hand. In general managerial economics, provide a link between economic theories with the decision sciences to develop vital tools for managerial decision making.
  The fundamental premise of managerial economics is that individuals share common motivations that lead them to behave systematically in making economic choices. This means that a person who faces the same choices at two different times will behave in the same way at both times, the situation commonly referred as rationally in economics literature. If economic behaviour is systematic, then it can be studied. Managerial economics proceeds by constructing models of economic behaviour.
      According to Wilkinson (2005), the knowledge is crucial in helping managers to perform several of their duties. The important of managerial economics has been recognised in a special way due to the following reasons that are attached to it;
    1. In recent days managers’ accountability to shareholders has grown tremendously due to the applicability of corporate governance to the various bodies being private or the government. In this perspective, managers regard managerial economics being essential in justify their actions based on what they accounted for by their shareholders.
    2. The growth and integration of the various firms enhanced by the relaxation of rules through liberalisation implies costs and a benefit matching is...