2. In a market economy, the price system facilitates allocation of resources. Discuss how a manager may contribute to the profit maximization goal of a firm by studying managerial economics. Typical risks faced by a firm.
According to Keat & Young (2009), the typical risks faced by a firm would be: 1. Changes in demand and supply condition
2. Technological changes and effects of competition
3. Changes in interest rates and inflation rates
4. Exchange rate changes for companies engaged in international trade 5. Political risk for companies with foreign operations.
Essentially, managers and the business itself must be able to assess and deal with all these risk, and in naturally these risks are very challenging to face. Awareness of all this risks means that managers also need to plan accordingly and be flexible to adapt. Managerial economics and profit maximization goal.
Managerial economics is a discipline that is designed to facilitate a solid foundation of economic understanding for business managers and enable them to make informed and analyzed managerial decisions, which are in keeping with the transient and complex business environment. Such knowledge acquired by managers in managerial economics will allow managers to make sound decisions towards the business goal(s), one is that of profit maximization. A manager’s business strategies and decisions will be conformed towards this goal. Thus the theories in economics will help in explaining and analyzing to contribute to the process of decision making. The knowledge in economics will help managers to estimate economic relationships, predict economic quantities, understand significant external forces; and formulate business policies. In relation to the price system, given that a manager is equipped with the know-how, the manager will be able to pursue the right approach and appropriate pricing scheme that in the long run optimizes the resources and...