Question

How is managerial economics related to other disciplines like finance, accounting, budgeting?

Answer 1

Managerial economics is related to finance, accounting and budgeting in many ways. Managerial economics is a discipline which is mainly used by business managers to make effective business decisions. Managerial decisions involve decisions regarding finance, accounting, and budgeting. A manager applies knowledge of managerial economics to make decisions regarding finance, accounting or budgeting. Managerial economics deals with the allocation of scarce resources among various alternatives. Knowledge of managerial economics helps a manager make effective financial investments by allocating the scarce financial resources among various investment alternatives. Similarly, managerial economics helps in making capital budgeting decisions by helping a manager effective allocate resources among various expense heads or investments.

Managerial economics deals with marginal analysis as well. In the marginal analysis, the marginal benefits and costs of an investment are evaluated to make an optimal investment decision. Marginal analysis is also applied in making financial decisions in which a manager needs to evaluate optimal investment level.

Managerial economics also deals with trade-offs. Knowledge of trade-offs helps managers balance the risks and returns on financial investments.

Accounting is widely used in managerial economics in recording and measuring various values. For example, accounting helps a manager determine the level of sales or output at which a firm will break-even. Also, accounting helps in recording and measuring various types of costs (fixes cots, variable costs, average cost, marginal cost, etc.) at various levels of production. This helps the manager make decisions regarding optimal output.

Therefore, we can see that managerial economics is related to finance, accounting and budgeting as the knowledge of one domain are applied in the other domains as well.