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Economic is not only the study of wealth as stated by Adam Smith, or a field confining itself to study of human behavior, which traces a relationship between unlimited ends and scare means as referred by Lionel Robbins. It is a field of study which encompasses the study of human behavior in relation to money. Over the years the vast expanse of the subject of economics has helped in varied fields both micro and macro. One such field is Managerial Economics.

Managerial Economics is very closely connected with the hotel industry. The hotel industry though considered with a service sector. Providing service in the form of food and accommodation to its guests is considered as an industry whose main aim is also to make profits, though this may change at times.

The hospitality  sector consists of different categories of hotels – namely the five star three star and other categories. These differentiate the hotels based on the serves of varied types, which are provided to the guest for instance the hotel may provide food accommodation and other services – which include a luxury room with a television, telephone, ticketing, transport etc. it is seen here that customers must incur a price for the use of all services.

The subject of economics helps the sector in various ways right from the time of initiation which leads to its establishment, and growth. For instance the decision of starting a hotel itself involves decision making to analyse the need for opening a hotel the cost to be incurred, the choice of selecting the right place to open an hotel, also plays a role in its growth. The type of facilities offered. The numbers of rooms to be built, all these decision have to possess the need and timing, for which the concept of economics is utilized.

The production activity involves the types of cuisine to be prepared each day. The type which more preferred by guests. The cost incurred to be setup the hotel has also to be calculated. The guiding principles of economics enable the hotel industry to get not only   profits but tries to avoid loss and to survive in the competitive situation.

The cost of production also plays an important role in the continued survival of an industry. Any business venture needs financial recourses for its sustenance and growth. In incurring expenditure on different inputs the hotel industry has also to check for the principles of cost benefit to enter in to production activity. Profits act as the main motivator in initiating a business. Though the primary motive of profit need not necessarily be the principle objective of the business. Whatever may be the production line, a certain percentage of profit is necessary as it acts as seed money for further investment and also a reward for the entrepreneurs risk bearing ability. Profits in the hotel industry depend to a large extent of guest arrivals. In a given year when tourist inflow would be abundant leading to a greater demand for accommodation, the entrepreneurs has Managerial Economics has to use this opportunity to either modify service charge in a way. So that he obtains a large flow. Like – wise in an off season when there are less number of tourists, the rent has to be slightly increased, so that he makes up for the loss incurred through unutilized facilities.

In the hotel industry, also there is stiff completion among the same categories of hotels in the form of accommodation. They provide the facilities they have and the price is charged for the service incurred. Here or the name plays an important role.

The hotel industry is only a subsidiary of the main service sector which is tourism, which relates to the flow of tourist within the country from outside. The macroeconomic concepts help the tourism industry to grow over a longer period of time. The economic policies both fiscal and monetary affect tourism industry, to a great extent. The effective function of tourism depends on appropriate decisions in accordance to the changes in the Govt. policy.

It is thus seen that the subject matter of economics plays an important role in the effective functioning of the service sector which is tourism and its subsidiary unit, which is the hotel industry.

It is seen that the subject of matter economics plays an important role in the effective functioning of the service sector which is tourism and its subsidiary unit, which is the hotel industry.

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