05: Managerial Economist and its View of Behavior

Managerial Economist

also known as an economic advisor or business economist; applies economic theories and methodologies to support efficient business management.

Key Functions of Managerial Economist

• Decision Support

• Environmental Analysis

• Forecasting

• Strategic Planning

• Prodit Optimization

Decision Support

Assists management through analytical skills and specialized techniques.

Environmental Analysis

Evaluates internal and external economic forces affecting the organization.

Forecasting

Provides timely economic forecasts and trend updates.

Strategic Planning

Supplies relevant data to guide planning, strategy, and capital use.

Profit Optimization

Contributes to earning reasonable returns on invested capital.

Core Responsibilities of Managerial Economist

• Demand Analysis and Forecasting

• Capital Management

• Profit Management

Unlimited Wants vs. Limited Resources

Individuals have infinite desires—rangung from material wealth and leisure to altruism and personal fulfillment. However, resources such as income, time, and natural assets are finite.

Implications for Management

A Managerial Economist recognizes this tension and focuses on:

• Prioritizing needs

• Understanding consumer behavior

• Optimizing resource allocation

• Designing strategies

Prioritizing Needs

Implications for Management: ________________ within resource constraints.

Understanding Consumer Behavior

Implications for Management: _____________________ driven by trade-offs and value perception.

Optimizing Resource Allocation

Implications for Management: ______________________ to meet organizational and customer goals.

Designing Strategies

Implications for Management: ___________________ that reflect scarcity, opportunity cost, and competitive positioning.

Different Managerial Economists’ View of Behavior

1. Economic Choice

2. Marginal Analysis

3. Opportunity Costs

4. Creativity of Individuals

Economic Choice

Economic research suggests that individuals make decisions by ranking their preferences and selecting the most satisfying option from the available alternatives. This process reflects the principle of rational choice, where people aim to maximize value—whether material, emotional, or social—given their constraints.

Importantly, economists do not assume people are purely self-interested. Within the economic framework, individuals also value charity, family, faith, and community wellbeing. These preferences are part of their utility and influence their choices.

Economists also recognize that people are not perfect decision-makers. Individuals operate with limited information, bounded rationality, and face costs in acquiring and processing knowledge. Choices are made under uncertainty, shaped by experience, context, and available resources.

Marginal Analysis

Marginal analysis refers to the evaluation of additional costs and benefits involved in a decision. In economics, it is not the total cost or total benefit that guides action, but the marginal—the change resulting from one more unit of activity. A decision is considered rational when the marginal benefit exceeds the marginal cost. This principle helps individuals and firms determine whether to proceed with an action, expand production, or allocate resources more efficiently. By focusing on incremental changes,marginal analysis supports optimal decision-making under conditions of scarcity.

Opportunity Costs

Opportunity cost refers to the value of the next best alternative foregone when a choice is made. Because resources are limited, using them for one purpose means giving up the chance to use them elsewhere. These trade-offs are often invisible but crucial. Recognizing opportunity costs helps individuals and businesses make better decisions by considering what is sacrificed in favor of a chosen option.

Creativity of Individuals

Within the economic framework, individuals seek to maximize personal fulfillment despite limited resources. Scarcity compels people to make choices, but it also inspires innovation. Humans are remarkably inventive in finding ways to overcome constraints—whether through new technologies,alternative methods, or creative problem-solving. This resourcefulness allows individuals to adapt, improve outcomes, and pursue meaningful goals even in the face of limitation.