Significance of managerial economics in decision making. 8 Popular Role of Managerial Economics in Decision Making 2022-12-14
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Managerial economics, also known as business economics, is a branch of economics that applies microeconomic analysis to decision-making strategies of businesses and management units. It helps managers make informed decisions by analyzing market conditions, consumer behavior, and the costs and benefits of alternative courses of action.
The significance of managerial economics in decision making can be seen in various aspects of business operations.
First, managerial economics helps managers understand the demand for their products or services and how it is influenced by various factors such as price, income, and the prices of substitutes or complements. This understanding helps managers set the optimal price for their products and make informed pricing decisions.
Second, managerial economics also helps managers understand the cost structure of their firm and how it affects the profitability of the firm. It helps managers identify the most cost-effective production methods and make informed decisions about the allocation of resources.
Third, managerial economics helps managers understand the impact of government policies on their business operations. For example, changes in tax laws or regulations can significantly affect the demand for a firm's products or the cost of production. By analyzing the potential impact of such policies, managers can make informed decisions about how to respond to them.
Fourth, managerial economics helps managers make informed decisions about how to enter new markets or expand their operations. It helps managers assess the potential demand for their products in a new market, the costs of entering the market, and the competitiveness of the market.
In conclusion, managerial economics plays a significant role in decision making for businesses and management units. It helps managers understand market conditions, consumer behavior, and the costs and benefits of alternative courses of action, which enables them to make informed and strategic decisions that contribute to the long-term success of their organization.
Application Of Managerial Economics In Decision Making Essay Example
This also helps to analyze the impact of alternative courses of action and evaluate the results of the model. It from exchequer issues that the ministry and its departments can start spending. In the action plan management of each department has to make an decisions on the following issues: Activities which are to be implemented in each quarter, the department may choose an activity to be implemented in the 1st, 2nd , 3rd or 4th quarter. Some decisions are simple and are almost automatic while others can be very difficult. A crisis management plan must be devised by the manager in order to not be heavily impacted by external changes.
Significance of managerial economics in decision making?
Managerial economics methods can be used to evaluate almost any business decision, but they are most widely applied to: Risk analysis — A variety of models are used to measure risk and asymmetric details, as well as to incorporate them into risk management decision laws. Helpful in understanding external factors Managerial economics helps to understand different external factors affecting business decision making. Most significant aim of business manager is decision making. The last part of the paper discusses the applicability of economic theories in decision making under the conditions of budget constraints and global financial and economic crisis. Economists wish to know why any particular division occurs in a free-market society and what forces, including government intervention, can cause it to change.
What is the importance of economic decision making?
All the activities require the services of labour and the firm should allocate the available labour in such a way that the value of Marginal Product of labour is equal in all the three activities. Despite the fact that decision making in the government is not solely based on economic theories it is worthy discussing some of the common theories and later see if they are relevant to the office of the Attorney General. You need to make decision irrespective of the work you are doing. Over the long swing of history, price levels have sometimes risen and sometimes fallen. Just as demand theory states that other factors remaining constant a consumer will increase quantity of goods demanded when its price is lower, Public procurement Act requires among other things to select the lowest bidder assuming other things are equal to all bidders, for instance quality and time of supply The process of budgeting in the Government is both top-down and bottom-top depending on the stage of the budget. Thus, economic theories are given consideration at the level when the Government as a whole makes a decision of allocating its resources in accordance to preference of the services to offer to the citizens.
Role of Managerial Economics in the Business Decision
It is in this part where a brief discussion on the relationship of economic theories and managerial economics is made, emphasis being made on the general decision-making process. Thus, the room to make decision is not based on the application of the production theory, theory of demand but on policies of the government on employment. The capacity to produce goods and services differ in different economies. Pricing problems involve decisions about various methods of pricing that firms need to adopt. Equi-Marginal Principle The allocation of the available resources among the alternative activities is deal with by the Equi-Marginal Principle. Managerial economics achieved a number of goals. Paragraph 4 of Government Notice No.
8 Popular Role of Managerial Economics in Decision Making
In this step, the objectives and outcomes are directly quantifiable. The first is that it is very versatile and can easily be extended to take into account many of the aspects which it is 1. Some of the activities may be spread evenly in all the 4 quarters. When the managers plan, they decide on many matters as what goals their organisation will pursue, what resources they will use, and who will perform each required task. However, practical life tells that almost all businesses apply managerial economics in one way or another. The very long run is concerned with situations in which the technological possibilities open to the firm are subject to change, leading to new and improved products and new methods of production. A manager therefore must be familiar with the generation, interpretation and use of accounting data.
Managerial economics enables business managers in ensuring that there is no resource wastage which reduces the overall cost. The things that are produced by the factors of production are called COMMODITIES. In addition to this problem the world is operating in uncertainty, if decisions are made without accommodating the risk component adverse results are likely to happen. The topic provides useful methods and strategies for formulating managerial policy. Having been regarded as micro economic as well as the economics of the firm, managerial economics is related to the economic theory which is to be applied to the business with the objective of solving business problems and to analyze business situations and the factors constituting the environment in which a business is operated.
The Importance of Managerial Economics in Decision Making
The theory of consumer behaviour In addition to explaining the law of demand, the idea of diminishing marginal utility explains how consumers allocate their money incomes among the many goods and services available for purchase. What is the importance of decision making? By providing these legal requirements the enhances the application of economic theories in public procurement. This is linked to the theory of consumer behavior and the government as a consumer acts rationally and wisely in spending taxpayers money. The five stages of the consumer decision making process include; Problem recognition, information search, information evaluation, purchase decision, and evaluation after purchase. When a person injured in an automobile accident then he accepts a settlement of Rs4,000 per month as compensation for the damage from the insurance company for the life time. Sensitivity analysis reflects how an optimal solution is affected, if the important factors vary or are altered.
They are automatically required to revisit their needs in the budget and rescale the preferences. The government as an institution is also faced with economical and social dilemma some of which need application of managerial economics. Managerial economics has been given different definitions but most of them involve the application of economic theory and methods to business decision-making. References and Suggested Readings Salvatore, D. Simply stated, managerial economics is applied microeconomics with special emphasis on those topics of greatest interest and importance to managers. Also, they must then devise plans for all possible cases where changes might affect the project.
In the long run, decisions must be made about expanding or contracting production and distribution facilities, developing and marketing new products, and possibly acquiring other firms. It is good to remember that economics is a social, not a physical, science. The government made compensation for damaged property. In 2008, the government restricted purchase of expensive vehicles. Often, the decision maker cannot be certain of the value to be accrued from the decision i. Forecast the Consequences Forecasting or predicting the consequences of each alternative should be considered.
Managers can get a better hold of management and transport of inventories by queuing products. In allcases, costs and benefits occur, however intangible, and a decision must bemade between different courses of action. Marginalism is associated with arguments concerning changes in the quantity used of a good or a service, as opposed to some notion of the overall significance of that class of good or service, or of some total quantity thereof. Make an effort not to. Project funding is done by donor countries development partners whether individually or in groups who are interested to assist in specific area which they are interested. The law of demand states that the quantity demanded of a good or service is inversely related to the selling price, ceteris paribus all other determinants remaining unchanged. These are adopted or changed as needed to allow the manager to make better decisions.
