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Section C Que-3: Economic Theories Relevant To Managerial Economics
Section C Que-3: Economic Theories Relevant To Managerial Economics
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Managerial economics is a branch of economics involving the application of
economic methods in the organizational decision-making process.[1] Economics is
the study of the production, distribution, and consumption of goods and services.
Managerial economics involves the use of economic theories and principles to
make decisions regarding the allocation of scarce resources
The law of supply and demand describes the relationship between producers and
consumers of a product.[14] The law suggests that price set by the producer and
quantity demanded by a consumer are inversely proportional, meaning an
increase in the price set is met by a reduction in demand by the consumer.
Production theory
Production theory describes the quantity of a good a business chooses to
produce due to multiple factors.[15] These factors include; raw material inputs,
labor, machinery costs, capital, etc.[15] The production theory states that a
business will strive to employ the cheapest combination of inputs to produce the
quantity demanded. The production function can be described by the function
where Q denotes production from a firm, L is the variable inputs,
and K is the fixed inputs.[16]
Opportunity cost
The opportunity cost details the costs and benefits of each action the business is
considering pursuing, and the cost of choosing one activity over another.[17] The
decision-maker is then in the position to choose the action with the highest
payoff.
Characteristics of Managerial
Economics
You need to know about the various characteristics of managerial
economics to get more knowledge about it. Let’s read about the
nature of managerial economics.
4. Multidisciplinary
7. Pragmatic
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