Why is managerial economics normative?

Normative economics is a branch of economics that states value for normative decisions about economic fairness. Its emphasis is on the result of the economy or what the objectives of public policy should be.

Positive economics states an economic issue and normative economics provides the numerical-value-based solution for the posed problem.

Different economists view the subject matter of managerial economics in different light but their conclusions have many features in common.

Managerial economics is concerned with decision making of economic data. It is concerned with identifying different choices and allocating resources.

Managerial economics is goal oriented as it targets maximum achievement of objectives and the way decisions should be made by the manager to achieve the ultimate solution to a problem.

Since managerial economics is a newly formed discipline, no uniform pattern has been adopted and different authors treat the subject in different ways. Nonetheless, the following topics are regarded as the range of the subject of managerial economics.

Relationship of managerial economics with other disciplines:

1. Analysis of demand data and forecasting

2. Analysis of cost and production

3. Analysis of pricing decisions and policies

4. Profit management and investment

5. Capital management and finances

6. Linear programming and theory of games application

Managerial economics has become increasingly mathematical in character. Businesses contend with various concepts which are measurable and analyzed by mathematical means such as statistics, probability and more recently neural networks of decision trees or probabilistic nature. The use of mathematical logic provides clarity of theories. It also provides a systematic frame of reference where quantitative relationship can be analyzed. Mathematics, therefore, is of indispensable help to managerial economics. The major problem confronting businesses is to minimize cost, maximize profit or optimize sales. To find out the solution for the overall problems, mathematical concepts and techniques are extensively used. Mathematical techniques like linear programming, games theory and so on help managerial economists to solve many of our societal problems.

Statistical methods provide a comprehensive base for decision-making and help the corporation to achieve the objective without much penalty. Statistical tools are a must for finding solutions of managerial problems. Managerial economists make use of various statistical techniques like theory of probability, co-relation techniques, regression analysis etc. in various business situations and modeling techniques.

Managerial economics has emerged as a special branch of knowledge in tandem with traditional economic theory in order to enhance the decision makers at various levels of a firms operation. Economic notions such as demand, costs, sales and its corresponding data analysis assist in applying models to the solution of problems in day-to-day business operation in a more scientific way.