APPLICATIONS OF MANAGERIAL

ECONOMICS
Some examples oI managerial decisions have been provided above. The application oI
managerial economics is, by no means, limited to these examples. Tools oI managerial
economics can be used to achieve virtually all the goals oI a business organization in an eIIicient
manner. Typical managerial decision making may involve one oI the Iollowing issues:
O eciding the price oI a product and the quantity oI the commodity to be produced
O eciding whether to manuIacture a product or to buy Irom another manuIacturer
O hoosing the production technique to be employed in the production oI a given product
O eciding on the level oI inventory a Iirm will maintain oI a product or raw material
O eciding on the advertising media and the intensity oI the advertising campaign
O aking employment and training decisions
O aking decisions regarding Iurther business investment and the mode oI Iinancing the
investment
It should be noted that the application oI managerial economics is not limited to proIit-seeking
business organizations. Tools oI managerial economics can be applied equally well to decision
problems oI nonproIit organizations. ark Hirschey and James L. Pappas cite the example oI a
nonproIit hospital. While a nonproIit hospital is not like a typical Iirm seeking to maximize its
proIits, a hospital does strive to provide its patients the best medical care possible given its
limited staII (doctors, nurses, and support staII), equipment, space, and other resources. The
hospital administrator can use the concepts and tools oI managerial economics to determine the
optimal allocation oI the limited resources available to the hospital. In addition to nonproIit
business organizations, government agencies and other nonproIit organizations (such as
cooperatives, schools, and museums) can use the techniques oI managerial decision making to
achieve goals in the most eIIicient manner.
While managerial economics is helpIul in making optimal decisions, one should be aware that it
only describes the predictable economic consequences oI a managerial decision. For example,
tools oI managerial economics can explain the eIIects oI imposing automobile import quotas on
the availability oI domestic cars, prices charged Ior automobiles, and the extent oI competition in
the auto industry. Analysis oI managerial economics will reveal that Iewer cars will be available,
prices oI automobiles will increase, and the extent oI competition will be reduced. anagerial
economics does not address, however, whether imposing automobile import quotas is good
government policy. This latter question encompasses broader political considerations involving
what economists call value judgments.

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