WHAT IS YOU REFLECTION/ LEARNINGS ABOUT THESE THINGS?
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WHAT IS YOU REFLECTION/ LEARNINGS ABOUT THESE THINGS?SIGNIFICANCE OF MANAGERIAL ECONOMICS IN DECISION-MAKING

It is a well-known fact that with the increasing complexity of the business environment, the usefulness of economic theory as a tool of business analysis has increased. Its contribution to the process of decision-making is a widely recognized fact today. In managerial economics, microeconomic analysis is a common tool for specific business decisions. This is why it bridges economic theory and economics in practice. Managerial economics makes good use of quantitative techniques like regression analysis and correlation techniques and Lagrangian linear calculus. Marginalization and incremental principle are also important techniques ofmanagerial economics. Marginal analysis uses marginal changes in the dependent variable resulting from a unit change in its determinant and the independent variable. The incremental principle is applied to business decisions which involve a large increase in total cost and total revenue. Most economic managers strive to optimize business decisions given theirfirm's objectives as well as constraints imposed by scarcity. Operations research and programming prove to be very handy in this.

We can use the techniques of managerial economics to analyze any business decision. Howerver, these techniques are most requently applied in case of the following

l Risk Analysis: It refers to a technique for identifying and assessing those factors or elements which have the potential to mark the success of a business enterprise. Through risk analysis, we can determine preventive measures so that these factors do not occur. Such an analysis can also help us decide counter measures to successfully deal with such probable obstacles. To determine orassess the riskiness of a business decision, we have the options touse several uncertainty models and risk quantification techniques.

l Production Analysis: Managerial economics techniques are used to analyze several factors relating to production of an enterprise, such as production efficiency, enterprise's cost function and optimum factor allocation.

l Pricing Analysis: It refers to examination and evaluation of a proposed price. It does not include the evaluation of its separate cost elements and proposed profit. Managerial economics techniques are very useful in analysing the various pricing decisions by policy decisionmakers and business managers, such as transfer pricing, joint product pricing, price discrimination, price elastrictiy estimations. These techniques are also helpful in choosing the optimum pricing method.

l Capital Budgeting: It refers to the planning process which is used to assess whether a firm's long-term investments are worth pursuring. These long-term investments could range from replacement of machinery to R & D projects. Business managers take the help of investment-related theories to dertermine andenterprise's capital puchasing decisions. Capital budgeting involves various methods such as net present value (NPV), internal rate ofreturn (IRR), equivalent annuity, profitability index, and modified internal rate of return (MIRR).

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