Question

Q1.As a novice, economics seems to be a dry social science that is laced with diagrams and statistics; a complex branch that deals with rational choices by an individual as well as nations — a branch of study which does not befit isolated study but delving into the depths of other subject areas (such as psychology and world politics. Discuss the basic concepts of economics

.

Q2. Effective managerial decision making is the process of arriving at the best solution to a problem. If only one solution is possible, then no decision problem exists. When alternative courses of action are available, the best decision is the one that produces a result most consistent with managerial objectives. The process of arriving at the best managerial decision is the goal of economic optimization and the focus of managerial economics. Analyze the concept of economic optimization

Answer 1

Answers :

Q1)

Definition: Economics is essentially a study of the usage of resources under specific constraints, all bound with an audacious hope that the subject under scrutiny is a rational entity which seeks to improve its overall well-being.

Two branches within the subject have evolved thus: microeconomics (individual choices) which deals with entities and the interaction between those entities, while macroeconomics (aggregate outcomes) deals with the entire economy as a whole.

Simply put, economics is the study of how society allocates its scarce resources. Since humans have virtually unlimited wants and needs, we must determine how to satisfy our needs with limited resources. Money comes to mind when most people discuss economics because they associate economics with purchasing goods, the exchange rate and oil prices — the list could go on. What most people don't know is that economics also deals with decision making, how firms work within industries and how the marketplace functions, among other things.

Some of the Basic Concepts of Economics are as follows :

1)Scarcity -Our wants and needs are virtually unlimited, but our resources to satisfy those desires are limited. Thus, we must choose which desires to satisfy. To use resources sustainably, our goal is to use them effectively and efficiently. This means that we want to achieve our goal while minimizing the number of resources needed to achieve our goal

2)Demand and Supply- It is a part of Microeconomics. Demand and Supply are the economic standards in the market for price determination. Demand is the need for a buyer whereas Supply is the quantity of a product or service. For example, if the price of apples is low, many people will purchase them, or demand them, because they're very affordable. Contrarily, if the price of apples is high, only a few people will purchase them because they're expensive.

3)Opportunity Cost - Commonly known as the basic relationship between scarcity and choice, the opportunity cost is a benefit someone gives up in order to gain something else. For example, if you have $10 to spend but you must choose between spending it on Burger and spending it on an Icecream, you must give up one to attain the other.

4) Incentives -People respond to incentives. Governments offer them because they can motivate individuals to act a certain way, which can be a good thing. For example, if a government offers subsidies to firms who reduce their pollution to a specified amount, firms will want to minimize their pollution so they can take advantage of the subsidy

5)Specialist World -The fundamental concept which is responsible for economic growth as we know it is the specialization of labor. If an entity is really efficient in producing a commodity (output to input ratio is high), it has an advantage over another entity which is not that efficient in producing the commodity under consideration.

6)Money, banking and Trading- Money is a means to interchange for goods and services and is used as an extent of their market values. Banking is a financial place licensed as a recipient of deposits. Whereas Trading is a process to exchange goods and services from one people to another in terms of money.

These are the basic concept of Economics.

Q2)

The concept of Economic Optimization:

Optimization means the most efficient use of resources subject to certain constraints it is the choice from all possible uses of resources which gives the best results, it is the task of maximization or minimization of an objective function it is a technique which is used by a consumer and a producer as decision-maker.

A consumer wants to buy the best combination of a consumer good when his objective function is to maximize his utility, given his fixed income as the constraints. Similarly, a producer wants to produce the most suitable level of output to maximize his profit, given the raw materials, capital, etc. as constraints. As against this, a firm cans hence the objective of minimization of its cost of production by choosing the best combination of factors of production, given the manpower resources, capital, etc. as constraints. Thus, optimization is the determination of the maximization or minimization of an objective function.

Optimal Decisions taken by the firm depends on the below questions:

Should the quality of inputs be enhanced to better meet low-cost import competition?

Is a necessary reduction in labor costs efficiently achieved through an across-the-board decrease in staffing, or is it better to make targeted cutbacks?

Following an increase in product demand, is it preferable to increase managerial staff, line personnel, or both?

These are the types of questions facing managers on a regular basis that require careful consideration of basic economic relations. Answers to these questions depend on the objectives and preferences of management. Just as there is no single “best” purchase decision for all customers at all times, there is no single “best” investment decision for all managers at all times. When alternative courses of action are available, the decision that produces a result most consistent with managerial objectives is the optimal decision.

A challenge that must be met in the decision-making process is characterizing the desirability of decision alternatives in terms of the objectives of the organization. Decision makers must recognize all available choices and portray them in terms of appropriate costs and benefits. The description of decision alternatives is greatly enhanced through the application of the principles of managerial economics. Managerial economics also provides tools for analyzing and evaluating decision alternatives. Economic concepts and methodology are used to select the optimal course of action in light of available options and objectives.

Optimization techniques are helpful because they offer a realistic means for dealing with the complexities of goal-oriented managerial activities.