Chapter 1 of “Managerial Economics” by Davies & Lam Case Study

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The scholars define Managerial Economics as the study that is focused on the application of economic theory, methods, and principles to the process of business and administrative decision-making so that the organizations can achieve their objectives in the best and most effective ways (Davies and Lam 3). Managerial Economics is viewed by Davies and Lam as the economic analysis of various business issues based on the firm theory, management scenes, and industrial economics (5).

The analysis implies the creation of models, to analyze a behavior the researchers make an assumption about it, theorize about the consequences of it, form predictions, test them against the existing evidence and then see if they are supported or refuted, the result of the model-building process indicates the validity of the model. The assumptions such models are based on can be unrealistic, as long as this allows the model to create useful predictions and set hypotheses.

Managerial Economics is focused on the given data and results, and instead of focusing on their evaluation (normative approach), it tries to explain what already exists (positive approach), its causes, and outcomes. Its main goal is to study the work of the market economy. The normative approach focused on “what should be” is more suitable for businessmen, while the positive approach studying the firm’s behavior is the prerogative of academic economists (Davies and Lam 13).

Managerial Economics allows the application of economic analysis to form predictions, study the behavior of firms and development of the market, provides a perspective of the business. It is linked to Management Science, which also seeks to improve the decision-making process, and Industrial Organization, which studies the behavior of industries that are composed of firms.

Works Cited

Davies, Howard and Pun-Lee Lam. Managerial Economics: An Analysis of Business Issues.

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IvyPanda. 2021. "Chapter 1 of "Managerial Economics" by Davies & Lam." March 1, 2021. https://ivypanda.com/essays/chapter-1-of-managerial-economics-by-davies-amp-lam/.

1. IvyPanda. "Chapter 1 of "Managerial Economics" by Davies & Lam." March 1, 2021. https://ivypanda.com/essays/chapter-1-of-managerial-economics-by-davies-amp-lam/.


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IvyPanda. "Chapter 1 of "Managerial Economics" by Davies & Lam." March 1, 2021. https://ivypanda.com/essays/chapter-1-of-managerial-economics-by-davies-amp-lam/.

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