Business Knowledge

Managerial Economics: Core Concepts

Smart Business: Your Economic Decision Toolkit

Use these core economic ideas to make better choices for your company.

1. Scarcity & Opportunity Cost:

  • Scarcity: Resources (time, money, people) are always limited.
  • Opportunity Cost: Every choice means giving something else up. What’s the next best thing you’re giving up?
  • Why: Helps you prioritize and choose the most valuable options.

2. Supply & Demand:

  • Demand: How much customers want your product at different prices.
  • Supply: How much you (and competitors) are willing to produce at different prices.
  • Why: Drives market prices and sales volumes. Understand this to set prices strategically.

3. Elasticity:

  • Price Elasticity: How much does demand for your product change when you change its price?
  • Why: Critical for pricing strategy. If demand is “elastic,” don’t raise prices too much!

4. Costs & Profit Maximization:

  • Fixed Costs: Don’t change with production volume (rent, salaries).
  • Variable Costs: Change with production volume (raw materials).
  • Marginal Cost (MC): Cost of one more unit.
  • Marginal Revenue (MR): Revenue from one more unit.
  • The Rule: To maximize profit, produce until MR = MC.
  • Why: Helps optimize production and pricing for maximum profit.

5. Market Structure:

  • Who are your competitors? Many? Few? One?
  • Are your products identical or unique?
  • Why: Impacts your pricing power and competitive strategy.

Golden Rule: Managerial economics isn’t about theory; it’s about using powerful economic insights to make practical decisions that drive your business forward.