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1. Economics often deals with abstract forces. Managerial economics deals with
people and the decisions they make. Managerial economics primarily deals with
the firm and its products in the marketplace as a function of executive decision
making. It stresses decisions and the context in which decisions are made in the
market. However, in no respect can managerial economics ever be separated from
the discipline of economics as a whole. Furthermore, it can never be separated
from the market and the broader economy either. It is in this setting that the
different "types" of managerialism can be found.
Normative Managerialism
2. Ethics rarely plays a part in economics. Demand and supply are two abstract
forces that do not, as a rule, worry about what it is precisely that is being
demanded and why. Major aspects of managerial economics, especially demand
analysis and cost cutting at the firm level, are loaded with ethical questions. The
nature of the product and its possible uses, the ethical nature of layoffs and hiring
policies are all important issues in the normative sort of managerialism. Most of
the literature on managerial economics stresses the ethical and conceptual side of
this discipline as one of the issues that make it different from other branches of
the discipline. Managers do not make decisions in a vacuum, but are always
confronted with real people with real lives. Therefore, automatically, their
decisions are based -- at least in part -- on ethical concerns.
Liberal Managerialism
3. This is the classic "libertarian" approach to managerial economics. In this model,
the market is a sort of democracy: A firm will win if it fits its structure and
products to the demand of the market, which is considered just an aggregation of
individuals and their preferences. The decision of the market is justified on the
same basis that any democratic election is justified. This type of managerialism
holds that decisions of managers must be tightly attuned to the market, or these
decisions will be the basis of the fall of the firm. It holds that managers are free in
their work, but that they must act as servants of the market.
Radical Managerialism
4. The radical/conflict sort of managerialism tends to reduce the focus of the
discipline on the manager as a person or free agent, and stresses the constraints on
the manager as a function of the broader economy. People are fired and products
are marketed because the demands of owners and shareholders and the reputation
of the managers themselves force them into it. The manager here is not a free
agent, but the system of advanced capitalism controls the nature of decision
making. This type of managerialism holds that the only way a manager can truly
be a free agent is to reject the capitalist system and its profit motive, and market
product based on need, not on profit.
Uses for Managerial Economics
Business managers can optimize business decisions using managerial economics.