Economic Principles and Decision Making Harvard Case Solution & Analysis

INTRODUCTION

DECISION MAKING USING ECONOMIC PRINCIPLES

This report will discuss the solutions of corporate problems using economical and statistical tools. Incorporating economic theories in taking corporate decision is actually a field of management sciences called Managerial Economics or Business Economics. It actually deals with the implications of micro economic theories to reach out the viable decisions regarding business procedures and management. It works as a link between theoretical and practical economics by overcoming the gap between theoretical and practical aspects.

Managerial economics is widely scoped all around the world in different fields. It is used for the analysis of Cost and Demand, Profit and Capital management, Business environment analysisand similar disciplines.

Accurate estimation of demand is vital for making managerial decisions. The prediction of future sales provides direction to the management to prepare production plans and allocate resources. This will assist the organization to retain its market position and profitability. This analysis also classifies a list of other elements affecting the product demand. Managerial economics has important place for demand analysis.

Estimation for cost of the project or product also possesses an important place in managerial economics. The multiple factors that cause fluctuations in estimated cost must be treated with high consideration for the purpose of planning. There is always a chance of uncertainty in cost estimation because other variables affecting the cost may not be controlled or may be unknown. If cost is estimated efficiently,it can help to achieve better planning for profit and cost control.

Economic Principles and Decision Making Harvard Case Solution & Analysis

The success of any business can be determined also by the price control of the firm. Managerial economics covers the different aspects such as the determination of price in different market situations, pricing methods and policies, productive and differential pricing, and price predictions.

The main objective of any firm is to maximize its profit but the profitability of the firm is always uncertain due to the fluctuations in revenues and costs. If the forecasting is perfect, then it is not a difficult task to make projections for profit and analyze it before it is realized. Therefore, it is the most difficult part in managerial economics in which we concentrate on nature of profit and its management, policies and performances of profit planning.

The difficulties regarding the capital investment decision of the firm is conceivably the most complicated decision taken by the firm. Capital management refers to the planning and regulation of capital expenditures as it involves a considerable sum andthe difficulties in allocating the capital assets require time and workforce. The main parts of managerial economics regarding capital investment are cost, rate of return and selection of viable projects.

The external factors also affect the working and progress of the firm. Therefore it is necessary to consider the external factors while making decisions. Neglecting the external factors in decision making procedures may result in adverse consequences. So, it is necessaryto undertake the environmental variables with respect to the nature of business..............

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