Question

Identify the area of decision making where managerial economics prescribes specific solutions to business problem​

Answer 1

Answer:

Decision-making is crucial for running a business enterprise which faces a large number of problems requiring decisions. Which product to be produced, what price to be charged, what quantity of the product to be produced, what and how much advertisement expenditure to be made to promote the sales, how much investment expenditure to be incurred are some of the problems which require decisions to be made by managers.  

The five steps involved in the managerial decision-making process are explained below:

1. Establishing the Objective.  
2. Defining the Problem.  
3. Identifying Possible Alternative Solutions (i.e. Alternative Courses of Action)  
4. Evaluating Alternative Courses of Action  
5. Implementing the Decision  

Explanation:

1. Establishing the Objective:  

 The first step in the decision-making process is to establish the objective of the business enterprise. The important objective of a private business enterprise is to maximize profits. However, a business firm may have some other objectives such as maximization of sales or growth of the firm.

2. Defining the Problem:  

The second step in the decision-making process is one of defining or identifying the problem. Defining the nature of the problem is important because decision-making is after all meant for the solution of the problem.

3. Identifying Possible Alternative Solutions (i.e. Alternative Courses of Action):  Once the problem has been identified, the next step is to find out alternative solutions to the problem. This will require considering the variables that have an impact on the problem. In this way, a relationship among the variables and with the problems has to be established.  

4. Evaluating Alternative Courses of Action:

The next step in business decision-making is to evaluate the alternative courses of action. This requires the collection and analysis of the relevant data. Some data will be available within the various departments of the firm itself, the other may be obtained from the industry and government.

5. Implementing the Decision:

After the alternative courses of action have been evaluated and the optimal course of action selected, the final step is to implement the decision. The implementation of the decision requires constant monitoring so that expected results from the optimal course of action are obtained. Thus, if it is found that expected results are not forthcoming due to the wrong implementation of the decision, then corrective measures should be taken.