Week 1 Q 2

Melissa Duling posted May 30, 2023 11:46 AM

Subscribe

This page automatically marks posts as read as you scroll.

Decision making in a business environment requires an understanding of cost and revenue data. This includes an understanding of marginal and incremental analysis, as well as basic cost and revenue relationships. Explain how a basic understanding of these concepts, as well as of managerial economics, can enhance the managerial decision-making process. Justify your answer.   With any business, the goal is to be profitable and to be sustainable through the ups and downs of the market and the needs of the consumers. Managers need to be able to evaluate the benefits and the risk that may be involved with decisions they make for the business. The evaluation should include not only the short-term but also what impact will the decision have over the long haul for the business, how will the decision help the business meet their long-term goals, and what are the positive and negatives for the business (South University, 2017). Leaders and managers need to have a good understanding of the costs and the revenue of the business, so they are able to make good decisions about the products and services of the business, as well as evaluate the benefits of any new projects. Managers can have a better understanding of the profitability for the business, which has a direct impact on the sustainability of the business. Managers can also use this information to identify areas of opportunity to cut cost, determine how to prioritize projects, and have a better understanding of risk that may be associated with investment opportunities (Anonymous, 2022). Managers need to have a good understanding of marginal analysis, so they are able to identify the cost and the benefits of certain business projects, investments, and decisions for the organization. The goal is to ensure that the benefit or revenue outweighs the risk or the revenue. Marginal analysis goes beyond projects and potential investments, it is also important when budgeting for potential new hires. If the organization is in need of more workers, will the benefit of hiring that person for increased production or performance be worth the cost, and will the organization see a positive return on the hiring. These are all questions that can be answered with marginal analysis. In any organization leaders and managers need to understand the importance of marginal analysis, and it is also a good idea to ensure that employees also have a good understanding, so they can better understand why some decisions are made (Tafoya, 2016). There will be times when there is more than one option that is presented to managers of a business and they will need to determine the best option, and there are times when an alternative will need to be considered. Incremental analysis gives managers the information they need to pick the best alternative, by reviewing the cost and the benefit of each alternative and then deciding which of the alternatives will be the best option for the business. Incremental analysis offers mangers a way to evaluate the most cost-effective option, how to use their resources effectively and how to decrease the risk and cost that may be associated with the decisions that are being made (Froeb et al., 2023). Managerial economics uses economic principles and process help managers make good decisions regarding business and to provide a guideline to better understand the importance of market conditions, how to evaluate data to make a decision that can have a positive impact on the profit and sustainability of the business, and how managers can use their resources to have the most impact on their business. Having a good understanding of cost and revenue, marginal and incremental analysis and managerial economics provides managers with the knowledge and tools they need to lead their employees, their business and to make decisions that result in a higher profit margin and lower risk.

References

Anonymous. (2022). Cost and revenue information for operational decisions. In  Cost accounting. WORLD SCIENTIFIC. 

Froeb, L., McCann, B., Shor, M., & Ward, M. (2023).  Managerial Economics: A Problem Solving Approach (6th ed.). Cengage Learning Inc. 

South University. (2017).  Goals of a Company [Lecture]. 

Tafoya, D. W. (2016). Profiling the marginal organization: A framework for operational analysis. In (Ed.),  Marginal organizations. Palgrave Macmillan US.