Identify the area of decision making where managerial economics prescribes specific solutions to business problem
Answers
Explanation:
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 managerial decision making process are explained below:
1. Establishing the Objective:
ADVERTISEMENTS:
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 maximise profits. However, a business firm may have some other objectives such as maximisation of sales or growth of the firm.
But the objective of a public enterprise is normally not of maximisation of profits but to follow benefit-cost criterion. According to this criterion, a public enterprise should evaluate all social costs and benefits when making a decision whether to build an airport, a power plant, a steel plant, etc.
2. Defining the Problem:
The second step in 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 solution of the problem. For instance, a cotton textile firm may find that its profits are declining.
It needs to be investigated what are the causes of the problem of decreasing profits. Whether it is the wrong pricing policy, bad labour-management relations or the use of outdated technology which is causing the problem of declining profits. Once the source or reason for falling profits has been found, the problem has been identified and defined.
Answer:
Establishing the Objective: ADVERTISEMENTS: ...
Defining the Problem: ...
Identifying Possible Alternative Solutions (i.e. Alternative Courses of Action): ...
Evaluating Alternative Courses of Action: ...
Implementing the Decision: