MANAGERIAL ECONOMICS

MANAGERIAL ECONOMICS

Mark Hirschey and Eric Bentzen define Managerial economics as the study of how organizations and their leaders can achieve maximum profit influenced by economic strength. This is the tool that is convenient and used by large corporations until nonprofits in all economic sectors. This tool also assists leaders in the decision-making process.

As the company progressed, leaders inevitably encounter problems that they have to solve. This is where Managerial Economics helps leaders to optimize their decision-making process. Here are problems that leaders might need to deal with:

• Recruitment and training
• Organizational design
• Designing an internet strategy
• Investment and financing
• Deciding on product output and pricing
• Selecting or developing products
• Promotional strategies

To ensure the maximum use of resources and minimize loss with specific concepts and quantitative methods, managerial economics has many practical applications that might involve:

• Marginal analysis is an activity and additional costs, which is a comparison between the general benefits of the same activity — an organization using marginal analysis to make the best possible decision to maximize their profit potential.
• Public choice theory is still associated with social choice theory. Social choice theory is a comprehensive variable for individual interests and a mathematical method of how these interests influence voter behavior.
• The theory of the strong influence influences decision-making in many areas such as price adjustment, resource allocation, production techniques, and the volume of the production.
• Game theory techniques are a theoretical framework used to understand social conditions among competing participants and lead to the best decisions in competitive independent participants and strategic settings.
• In order to function, optimization technology requires the system to continually adapt itself to achieve changing goals, from changing the number of periods used in a moving average to simply taking an ineffective approach.
• Forecasting procedures use to make a prediction that will give information regarding the estimation of future trends. This technique utilizes historical data for inputs.

Types Of Managerial Economics

• Liberal Managerialism

According to liberal managerialism, the market should be a democratic place where people can choose and decide their choice. To avoid business failures, organizations and managers must operate according to customer needs and market trends.

• Normative Managerialism

According to normative managerialism, managerial economics is administrative decision-making based on experience and practices in real life. Practical approaches are forecasting, demand analysis, etc.

• Radical Managerialism

Managers should pay more attention to customer needs and satisfaction, not just profit maximization. Having a revolutionary attitude towards decision-making in business, they should make decisions that changing the current conditions.

Principles of Managerial Economics
The ten principles that explain the importance of managerial economics classified by Economist N.Gregory Mankiw are:

Principles of How People Do Decision-Making
1. People Face Tradeoffs
An individual must be able to make the best decision from the many choices
2. Opportunity Cost
Opportunity cost is when we make the most appropriate choice, make us release the costs of the other decisions being released
3. Rational People Think at the Margin
The condition when someone thinks about the benefits that might be obtained when making an investment
4. People Respond to Incentives
Positive incentives affect people well. Negative incentives will have bad effects such as unwillingness.
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Principles of How People Connect Each Other
5. Trade Can Make Everyone Better off
Trade is an act of exchange between people. People can sell and buy products of their choice.
6. Markets Are A Great Way to Establish Economic Activity
Consumers play a role as part of demand in the market, and producers act as providers in the market
7. Governments Can Sometimes Improve Market Outcomes
Under unfavorable market conditions or for social welfare, the government will intervene in business operations.

Principles Of How Economic System Works
8. The standard of living of a country depends on its capacity to produce goods and services
9. Inflation
Surplus money will increase spending capacity, which will eventually lead to increased demand. When producers cannot meet the needs of consumers, inflation occurs.
10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment
The government has adopted many economic policies to promote economic development in the short term.

By : Salsabiila Baharizky Naedi & Gavin Howard Ngadi
Resources :
https://online.concordia.edu/business-news/what-is-managerial-economics/
https://investopedia.com
https://theinvestorsbook.com/managerial-economics.html