Managerial Decisions

The Importance of Managerial Decisions

The Importance of Making Managerial Decisions

Decisions made by managers are crucial to the success or failure of a business. Roles played by business managers are becoming increasingly more challenging as complexity in the business world grows. Business decisions are increasingly dependent on constraints imposed from outside the economy in which a particular business is based, both in terms of production of goods as well as the markets for the goods produced. The impact of rapid technological change on innovation in products and processes, as well as in marketing and sales techniques, figures prominently among the factors contributing to the increasing complexity of the business environment. Moreover, because of increased globalization of the marketplace, there is more volatility in both input and product prices. The continuous changes in the economic and business environment make it ever more difficult to accurately evaluate the outcome of a business decision. In such a changing environment, sound economic analysis becomes all the more important as a basis of decision making. Managerial economics is a discipline that is designed to provide a solid foundation of economic understanding in order for business managers to make well-informed and well-analyzed managerial decisions.

1. Should our company hire temporary workers or hire new workers to handle increase demand for our product?

Hiring temporary workers increases the variable cost, on the other hand hiring permanent workers will increase the fixed costs.

2. Should we buy a new machine or upgrade the old one?

Up gradation, buying a new machine increases the fixed cost; the up gradation also increases the fixed-cost but that which can be changed in a shorter period of time.

3. What is the optimal level of parts we should order and keep on the shelf?

The optimal level of parts we should order is the point where the marginal cost of ordering and keeping the...