DECISION MAKING IN MANAGERIAL ECONOMICS
Download as PPTX, PDF33 likes56,537 views
The document provides information on managerial economics and decision making. It defines managerial economics as applying economic theory to management decision making. It lists examples of managerial decisions and outlines a six step process for decision making. Finally, it explains how managerial economics helps managers make decisions by establishing objectives, defining problems, identifying factors, specifying alternatives, collecting data, evaluating options, and implementing and monitoring the best alternative.
DECISION MAKING IN MANAGERIAL ECONOMICS
- 2. Outline What is managerial economics and why should you study it? Examples of managerial decisions Six steps to decision making How does managerial economics helps in decision making? ?
- 3. Managerial economics is the application of economic theory to management decision making What is managerial economics? Economics Management Managerial economics
- 4. Why Managerial Economics ? Managerial economics is the study of how managers can apply economic principles and analyses as well as quantitative tools in making an effective business and managerial decisions involving the best use (allocation) of the organizations scarce resources to achieve their objectives.
- 5. Examples of Managerial Decisions • How to use economic theory to set prices that maximize profits. • How to use economic theory to choose the cost- minimizing production technique for a given scale of output. • How to use economic theory to select the “optimal” location for a new restaurant, grocery store, etc. • How to use economic theory to forecast near-term demand for goods and services.
- 6. ROLE OF MANAGERIAL ECONOMICS IN MANAGERIAL DECISION MAKING Managerial economics uses economic concepts and decision science techniques to solve managerial problems. Management Decision Problems Managerial Economics Optimal Solutions to Managerial Decision Problems Economic Concepts Decision Sciences
- 7. • Framework for Decisions • Theory of Consumer Behaviour • Theory of the Firm • Theory of Market Structure and Pricing Economic Concepts Management Decision Problems Product Price and Output • Make or Buy • Production Technique • Internet Strategy • Advertising Media and Intensity • Investment and Financing
- 8. Decision Sciences Tools and Techniques of Analysis • Numerical Analysis • Statistical Analysis • Forecasting • Game Theory • Optimization Managerial Economics Use of Economic Concepts and Decision Science Methodology to Solve Managerial Decision Problems
- 9. Six Steps to Decision Making 1. Defining the Problem 2. Determining the Objective 3. Exploring the Alternatives 4. Predicting the consequences 5. Making a choice 6. Performing sensitivity analysis
- 10. Defining the problem “I have a flat tire.”
- 11. Defining the objective The spare won’t last long I gotta get this tire replaced!
- 12. Exploring the alternatives • Go to Sears • Go to Wal-Mart
- 13. Predicting the consequences • Wal-Mart is closer and cheaper. • Sears is a costlier and poor in facilities.
- 14. Making a choice I’m going to Wal-Mart
- 15. Sensitivity Analysis: Why is it Useful? Sensitivity analysis provides an insight into the key features of a problem that affect a decision— •e.g., the decision to continue a product line depends of profit forecasts, which in turn are based on assumptions about future sales, prices, or costs. What happens to our forecast when we modify the assumptions? •It allows us to trace the effects of changes about which the manager may be uncertain. •It can give solutions to decisions which are recurring, but must be made under slightly different conditions.
- 16. How does managerial economics helps in decision making? Following are the steps helps to managers while taking decisions.. 1.Establish objectives. 2.Define the problem. 3.Identify factors that affect the problem. 4.Specify alternative solutions. 5.collect data and other information's. 6.Evaluate and screen alternatives. 7.Implement best alternative and monitor result.
- 18. 1. “Kolaveri D” • Tamil Actor Dhanush recorded a song for the film 3, in which he also plays the lead role - only to discover soon after that a disgruntled employee in his office had leaked it on YouTube. • "Then someone suggested making a video of the song and releasing that as well on YouTube as the official version,“. • As if by magic, the song became a rage, effortlessly transcending language barriers - the first Tamil song, albeit with a smattering of English, to do so.
- 19. 2. VOLVO CHANGE STRATEGY Volvo brought in its inter-city bus when it saw the market was not ready for a city bus SELL THE CONCEPT, NOT JUST THE PRODUCT Volvo engaged with all stakeholders - from operators to passengers to drivers - to sell its buses USE MACRO CHANGES TO YOUR ADVANTAGE When Volvo saw that increasing congestion and growing environmental awareness were making public transport attractive, it brought back the city bus CHANGE THE GAME When the competition started to close in on Volvo, it introduced products that would increase the number of passengers
- 20. 3. GODREJ APPLIANCES THE PROBLEM Despite the strong brand name, people were turning away from the company's products. THE CHALLENGE The market had turned competitive and Godrej could not connect with young buyers. THE WAY OUT Introduce better technology, more products, re-brand products to appeal to the youth. THE SUCCESS Success Acquired a youthful tech image, recaptured significant market share in refrigerators.