Managerial economics provides a systematic, logical way of analyzing business decisions that focuses on the economic forces that shape both day-to-day decisions and long-run planning decisions. Managerial economics applies microeconomic theory—the study of the behavior of individual economic agents—to business problems in order to teach business decision makers how to use economic analysis to make decisions that will achieve the firm’s goal: the maximization of profit. Economic theory helps managers better understand real-world business problems by reducing business decisions to their most essential components and then applying economic reasoning to reach profit-enhancing conclusions. In this introductory chapter, we set forth the meaning and importance of economic profit both as a measure of managerial performance and as the primary objective for all managerial decision-making. One of the most powerful tools in microeconomics and managerial economics is marginal analysis. The central goal of this textbook is to show you how to use this methodology to make optimal decisions concerning nearly every decision managers must make in order to maximize the profit of their firms.
