Managerial Economics: The Demand & Supply Model
Managerial economics is the application of the economic theory using quantitative and statistical tools to analyze how organizations can achieve their aims and objectives. In other words, the managerial economics use the decision science analysis using the econometrics and microeconomic theories to analyze how organizations can achieve their aims and objectives efficiently by maximizing their profits through the combination of inputs such as capital, skilled labor, and raw materials. The managerial economics is also concerned with the ability of firms to manage legal constraints such as health and safety standards, minimum wage laws, and pollution emission standards. Similar to the private organizations that seek to maximize profits through the managerial economics, the non-profits organizations also face some constraints when attempting to reach their goals, however, the constraints may differ from a case to case. (Bhat, & Rau, 2008).
The objective of this paper is to investigate the strategy of using the managerial economic tools to arrive at optimal solutions.
Use of the Managerial Economic Tools to achieve Optimal Solutions
The managerial economics combines the applied economic tools with administrative and business decisions using the macroeconomics, macroeconomic and mathematical models. Typically, the managerial economics can be applied in both private and public organizations using the macroeconomic concept to solve the real-world problems such as making the best pricing decisions in different competitive business environments. In the competitive business environment, firms seek to maximize their profits subject to the limitations of inputs such as land, labor, raw materials and capital as well as legal constraints such as pollution, health and safety laws and wage laws. (Townsend, 1995).
The managerial economic concept identifies two type of firms: the price setters and price takers. The price taking firms do not have resources to set prices for their products, thus, their product prices are set by the forces of demand and supply. On the other hand, price setting firms have the ability to set the prices for their products. These categories of firms have enough market powers to raise the prices of their products without losing sales.
Moreover, the managerial economics discusses the theory of market. A market refers to the arrangement by which sellers and buyers...
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