The Concepts of the Science of Managerial Economics

Topics: Economics, Microeconomics, Operations research Pages: 7 (1703 words) Published: August 28, 2014
Consider the Concepts of the Science of Managerial Economics

Running successful businesses requires involvement of well experienced and talented managers; all companies’ stakeholders concern, in running companies, is to make profits and expectation is on managers’ part to make such desire become the fact of reality. One of the tools managers use to analyse company’s performances and be able to make intelligent decisions- for further profitability and sustainability of the corporations- is by economical tool. “managerial economics provides a systematic, logical way of analyzing business decisions that focuses on the economic forces that shape both day-to-day decisions and long-run planning decisions” (Thomas, & Maurice, 2011, p. 30). As stated by Thomas, & Maurice, managerial economics is the result of two fundamental “areas of economic theory”, namely microeconomics and industrial organization (2011, p. 5). “Microeconomics is the study and analysis of the behavior of individual segments of the economy: individual consumers, workers and owners of resources, individual firms, indus- tries, and markets for goods and services.” (Thomas, & Maurice, 2011, p. 6). Hence, in microeconomics we are dealing wih essesntially every goods and services bought and sold I the market; hence an important feature of microecomnomics is the supply and demand function of the market. As the level of supply and demand changes, organizations take strategical approaches toward atteibutes of their quality, quantity supplies, and the prices. At the microeconomic level, any changes in national governmental policies, such as flucuatinon of interest rates, and taxation policies. By studying and understanding the forces affecting microeconomics, companies are able to make realistic decisions in taking adequate approaches toward the market in terms of quality/quantity supplies, pricing, and dealing with competition. The study of microeconomics includes areas such as production, cost control, supply and demand, and the market structure, attributed by monopolism, oligopoly, perfect competition, etc. “Studying various economic branches can open doors to many different careers. Programs in basic financial economics, marketing, international economics and related fields are available at most colleges or universities for economics students.”

Read more : Industrial organization, which focuses specifically on the behavior and structure of firms and industries, supplies considerable insight into the nature, motivation, and consequences of strategic actions firms may wish to undertake. (Thomas, & Maurice, 2011, p. 6). Organizations competing in an industry should take strategical approaches toward their prodiction, quality, process, and other competitive related issues. Hence, industrial organization deals with companies’ understanding of the market, strength of the competition, and the way a firm operates in a market. Industrial organization has focus on firm’s ability to establish strategic approach; companies need to distinguish whether there is bargaining power of buyers, or suppliers; business strategies in markets with bargaining power of cbuyers or suppliers are difficult to establish since in such markets buyers and suppliers have strong say to negotiate prices and conditions. Since “the goal of the firm is to maximize economic profits”, hence it is managers’ responsiblility to learn how to measure and interpret company’s profit (Thomas, & Maurice, 2011, p. 8). From the economical perspective, profit is defined as “the difference between total revenue and total economic cost” (Thomas, & Maurice, 2011, p. 12). Economic cost is defined as sum of explicit and implicit cost (Thomas, & Maurice, 2011). Explicit cost is “the costs of using marketplace resources”, which means resources which are incurred by monetary payment (Thomas, & Maurice, 2011, p. 12). Implicit costs are, on the...
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