The theory of Managerial Economics includes a focus on; incentives, business organization, biases, advertising, innovation, uncertainty, pricing, analytics, and competition. In other words, managerial economics is a combination of economics and managerial theory. It helps the manager in decision-making and acts as a link between practice and theory.Furthermore, managerial economics provides the device and techniques for managers to make the best possible decisions for any scenario.
Managerial Economics By Peterson And Lewis Solutions Manual
The price elasticity of demand is a highly useful tool in managerial economics as it provides managers with the predicted change in demand associated with an increase in the price charged for its goods and services. The price elasticity principle also outlines the changes in demand for goods with changes in the income of a populous.
Where Δ Q \\displaystyle \\Delta Q is the change in demand for the respective change in price Δ P \\displaystyle \\Delta P , with Q and P representing the quantity and price of good before a change was made.The price elasticity is important for managerial economics as it aids in the optimization of marginal revenue of firms.
Managerial economics to a certain degree is prescriptive in nature as it suggests a course of action to a managerial problem. Managerial economics aims to provide the tools and techniques to make informed decisions to maximize the profits and minimize the losses of a firm. Managerial economics has use in many different business applications, although the most common areas of its focus are in relation to the Risk, Pricing, Production and Capital decisions a manager makes.
When making decisions, managerial economics is used to analyze the micro and macroeconomic environments relating to an organization. Microeconomics considers the actions of individual firms surrounding utility maximization, whereas in comparison, Macroeconomics considers the actions and behaviour of the economy as a whole. As such, both area of economics have influence in the development of managerial economics frameworks.
With regard to macroeconomic trends, the forecasting and analysis of areas such as output, unemployment, inflation and societal issues are essential in managerial economics. This is because these areas in the macroeconomy have the ability to provide an overview of global market conditions, which can be imperative for managers to understand. An example of managerial economics using macroeconomic principles is a manager choosing to hire new staff rather than training old ones in a time where the rate of unemployment is high, as the possible talent pool would be very large. The political structure of a country (whether authoritarian or democratic), political stability and attitudes towards the private sector can also affect the growth and development of organizations. This can be seen through the influence different government policies can have on management quality. In particular, policies around product market competition has been seen to significantly impact collective management practices in countries by either reducing or supporting poorly managed firms. A clear understanding of relevant markets and their different conditions is a vital task for a managerial economist, as even with market instability and fluctuations the goal is to always steer the company to profits.
Microeconomics is closely related to Managerial economics through areas such as; consumer demand and supply, opportunity cost, revenue creation and cost minimization. Managerial economics inculcates the application of microeconomics application and makes use of economic theories and methods in analyzing a business and its management. Moreover, managerial economics combines economic tool and technique to solve the managerial problems.
Microeconomics also gives indication on the most effective allocation of resources the business has available to it.These microeconomic theories and considerations are used via managerial economics to make decisions regarding the business. By understanding the principles of microeconomics, managers can be well informed to make accurate decisions regarding the form.
An example of managerial economics using microeconomic principles is the decision of a manager to increase the price of the goods being sold. A manager should evaluate the price elasticity of the product to equate the respective demand of the product after the price change.
Designed for courses in Managerial Economics in economics, business, and MBA programs, the Fourth Edition offers a lively, applied presentation of analytical and empirical tools for managerial decision making. The new edition increases the emphasis on managerial applications with more problems, case studies, questions, and with a revised version of the TOOLS software package. 076b4e4f54