Economics for managerial decision making

Application of managerial economics in decision making

Similarly, managerial economics reveals that auto import quotas reduce the availability of substitutes for domestically produced cars, raise auto prices, and create the possibility of monopoly profits for domestic manufacturers. According to this criterion, a public enterprise should evaluate all social costs and benefits when making a decision whether to build an airport, a power plant, a steel plant, etc. Which product to be produced, what price to be charged, what quantity of the product to be produced, what and how much advertisement expenditure to be made to promote the sales, how much investment expenditure to be incurred are some of the problems which require decisions to be made by managers. Managerial economics is a discipline that combines economic theory with managerial practice. The five steps involved in managerial decision making process are explained below: 1. The primary function is to make the most profitable use of resources which are limited such as labor, capital, land etc. The five steps in the decision making process are shown in Fig. The choice between these alternative courses of action depends on which will bring about larger increase in profits. Microeconomics and managerial economics both encourage the use of quantitative methods to analyze economic data.

It links economic concepts with quantitative methods to develop vital tools for managerial decision making. Whether it is the wrong pricing policy, bad labour-management relations or the use of outdated technology which is causing the problem of declining profits. The crucial role of a business manager is to determine optimal course of action and he has to make a decision under these constraints.

The two possible solutions of the problem are: 1 Updating and replacing only the old machinery. It may be further noted that for the choice of an optimal solution to the problem, a manager works under certain constraints.

role of managerial economics in decision making ppt

Firms are operated to earn long term profit which is generally the reward for risk taking. Also, this can be attributed to increasing demand for professionally trained management personnel, who can leverage limited resources available to them and maximize returns with efficiency and effectiveness.

Methods such as regression analysis, differential calculus, linear programming, cost- benefit analysis are used to arrive at the optimal course.

Application of managerial economics in business decision making

Economic theory and economic analysis are used to solve the problems of managerial economics. It involves the complete course of selecting the most suitable action from two or more alternatives. The implementation of the decision requires constant monitoring so that expected results from the optimal course of action are obtained. Businesses have finite human and financial resources; managerial economic principles can aid management decisions in allocating these resources efficiently. Managerial economics prescribes rules for improving managerial decisions. This requires, the collection and analysis of the relevant data. Demand Analysis and Forecasting Demand analysis and forecasting involves huge amount of decision-making! This will require considering the variables that have an impact on the problem. The course of action which is optimum will be actually chosen. In regard to this, various hypotheses can be developed which will become alternative courses for the solution of the problem. Macroeconomics deals with the performance, structure, and behavior of an economy as a whole. The optimum solution will be one that helps to achieve the established objective of the firm. Whether it is the wrong pricing policy, bad labour-management relations or the use of outdated technology which is causing the problem of declining profits.

This will require considering the variables that have an impact on the problem. According to this criterion, a public enterprise should evaluate all social costs and benefits when making a decision whether to build an airport, a power plant, a steel plant, etc.

Managerial economics is economics applied in decision making discuss

It is more limited in scope as compared to microeconomics. According to this criterion, a public enterprise should evaluate all social costs and benefits when making a decision whether to build an airport, a power plant, a steel plant, etc. Managerial economics describes the logic of this pricing practice with respect to the goal of profit maximization. The implementation of the decision requires constant monitoring so that expected results from the optimal course of action are obtained. Thus, if it is found that expected results are not forthcoming due to the wrong implementation of the decision, then corrective measures should be taken. Managerial economics applies microeconomic theories and techniques to management decisions. However, a business firm may have some other objectives such as maximisation of sales or growth of the firm. The five steps in the decision making process are shown in Fig.
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Economics and Managerial Decision Making