Managerial economics is a branch of economics that deals with the application of economic theory and techniques to the decision-making process of managers in businesses. It helps managers make informed decisions by providing them with a framework for analyzing and understanding the economic implications of various options. In this way, managerial economics plays a vital role in the business decision-making process.
One key aspect of managerial economics is the use of cost-benefit analysis. This involves weighing the potential costs and benefits of different courses of action to determine which option is the most desirable. For example, a manager may be considering whether to invest in a new piece of machinery for the company. They would need to consider the upfront cost of the machinery, as well as any ongoing maintenance costs and the potential increase in productivity that the machinery would bring. By carefully weighing the costs and benefits, the manager can make an informed decision about whether the investment is worth it.
Another important role of managerial economics is the analysis of market conditions. Managers need to be aware of the economic conditions in which their businesses operate, including the level of competition, the demand for their products or services, and the state of the overall economy. By understanding these factors, managers can make better decisions about things like pricing, production levels, and marketing strategies.
Managerial economics also helps managers understand the impact of government policies and regulations on their businesses. For example, changes to tax laws or environmental regulations can have significant implications for a company's bottom line. By understanding these impacts, managers can make informed decisions about how to respond to such changes and protect the interests of their businesses.
In summary, managerial economics plays a crucial role in the business decision-making process by providing managers with the tools and frameworks they need to make informed, economically sound decisions. It helps managers understand the costs and benefits of different options, analyze market conditions, and navigate the impacts of government policies and regulations. As a result, managerial economics is a vital discipline for businesses of all sizes and industries.
Role of Managerial Economics in Decision Making
When this happens the resources are said to be in involuntarily unemployed. Examples include butter and golf balls, potatoes and automobiles, and bananas and wrist watches. The foresaid expenditures are those financed solely by the government. Goods whose demand varies inversely with money income are called inferior goods. However, this may not be viable to do in practice due to resource limits. Managerial economics, or business economics, is a division of microeconomics that focuses on applying economic theory directly to businesses.
Roles of Managerial Economist in Business
The implementation of the decision requires constant monitoring so that expected results from the optimal course of action are obtained. In practice, there may be many problems while setting the objectives of a firm related to profit maximization and benefit cost analysis. Introduction of New Products According to Tan 2013 , Apple Inc. Forecasts of future demand, investment decisions by business firms are especially based on the overall situation of the economy and its growth prospects. Moreover, it enables to make decisions about appropriate production and inventory policies for the future. Similarly, a change in expectations relating to future product availability may affect current demand.
Application Of Managerial Economics In Decision Making Essay Example
Paragraph 4 of Government Notice No. The theory which assumes that the objective of the firm is to maximise profit does not apply to government because its existence does not depend on profit but on welfare of the people. As we have noted that the existing resources of any country are not sufficient to satisfy even the most pressing needs of all the individual consumers. It aids in the analysis of demand and, as a result, production activities are carried out. Conclusion Managerial economics as a science is used as a road-map to show and aid decision makers in arriving at optimal decisions given various constraints. However, while the company boasted its technology prowess, other technologies such as Android and Windows Phone software ventured into the Smartphone market, thus posing stiff competition for the iPhone technology.
The Importance of Managerial Economics in Decision Making
Advisory to the company: The business economist advises the businessman on all economic and non-economic matters. Market Structure Apple adopts a 3-point marketing philosophy that has taken the company through falls and ups in the last three and half decades Tan, 2013. The capacity to produce goods and services differ in different economies. This theory asserts that, other factors remaining constant, individuals will tend to purchase increasing amounts of a good or service as prices fall and decreasing amounts as the prices rise. The techniques of decision sciences used especially for business decision making are optimisation techniques, particularly differential calculus and mathematical programming. It uses multiple quantitative methodologies and logic to estimate all future demands, which aids in the production planning process. Incremental Principle Marginal Cost and marginal revenue of economics theory are related with incremental principle concept.
