Question

When Jimmy and Evelyn founded a new restaurant, they purchased supplies on company credit cards and used the points for personal travel. As the chain grew, they brought in a second investor, and the three of them shared the points among themselves, allowing them to purchase several business-class tickets to Europe each year. As the chain continued to grow, two more outside investors were brought in. The new CFO who came with them insisted that the points be used only for company-approved travel. The relationship between the founders and the new shareholders began to sour, and, eventually, the new shareholders forced a buyout of the founders and terminated their employment with the company. Based on the above situation:

Analyze the key economic issues in the case.

Recommend three different business solutions to each case using managerial economic models and methods.

Justify the role of managerial economics by identifying the metrics you would use to assess the success of your decisions.

Answer 1

Honestly using the points for personal travel was absolutely OKAY. when the points were shared among the owners because they were spending what they have already owned.But when the new owners joined them, the founder were spending the new shareholders money on themselves, which was not justified and the shareholdersares are also the part of the company and they have their right to say and its not the right way to force the new shareholders a buyout and terminated employment with the company. Because the principlas are shareholders and their agents are the employess of the company and a company can only be successful when the founder and its shareholders are in good terms without any conflicts as it can affect the profit as well as reputaion of the company.

Different business solution using managerial economic model and methods are as follows:

Managerial economics is concerned with the application of economic analysis to the problems of formulating rational managerial decisions.

1) Demand analysis and forecasting: It involves huge amount of decision making demand estimation is an integral part of decision making, an assessment of future sales helpsin strengthening the market position and maximizing profit.In managerial economics,demand analysis and forecasting holds avery important place.

2) Profit Managment: Sucecess of a business depends on its primary measure and that is profit.Business are operated to earn long term profit which is generally the reward for risk taking.Appropriate planning and measuring profit is the most important and challenging area of managerial economics.

3)Capital Management: It involes planning and controlling of expenses.There are many problems related to capital investments which involve considerable amount of time and labor.Cost of capital and rate of return are important factors of capital management.

ROLE OF MANAGERIAL ECONOMICS ARE AS FOLLOWS:

1) Useful in Business organization : In many firm .How should any production be done, and for whom should be produced? The answer to al these questions remains only with the managerail economy because it plays the most important role in these taks. so we can say tht managerial economics plays a very bigh role and significance in the important decisions of the business.

2) Helpful in checking out business policies: It is very useful for any business or firm so that every business or firm can get the maximum benefit.Then we can say that there is a huge contribution of managerial economics to profit maximization and determining policies .It also helps in doing it.

3) Help in business planning: Business economics is very useful in planning a complete prospect among the successful operation and production of any business or firm which acts as balance bridge between the production tools and operating systems and where to go.So, this is the biggest and important role of business economics in any business or firm.

4) Helpful in cost control: Managerial economics decides the business is going towards profit or loss managerial economics decides which way id good for the business and it is only possible when managerial economics plays a very big and important role in cost control decisions. Thus the role and important of managerial economics in choosing the right decisions is very powerful.

5) Useful in coordination of business activities : Managerial economics is useful in coordinating the various activities of a business.

6) Useful in demand for casting: Managerial economy deals with future losses easily.So that any business can be protected against future losses.

7) Helpful in profit planning and control: Managerial economics helps manager to decide on the planning and control of the benefits. Thus its plays a huge role in Business decisions .

8) Helpful for Business prediction: It is not known to anyone about what is going on in the business therefore business economics tells us that the business can see what is troubling in the future. So , then the managerial economics gives its solution so that can be avoided and the benefits can be increased.

9) Helpful in price determination: Managerial economics provides the necessary guidance in managing the pricing of its business.This provides this in orderto raise the required data in pricing and get the maximum benefits.So, that is the major role of managerial economics in the business decision critical, without this no business can progress.

10) Helpful in solutions of business taxation problems: Managerial economics provides useful guidance in solving problems caused by various types of tax done in business and contracting of business helps reduce problems.

11) Useful in understanding the mechanism of economic system: It is useful in understanding the complex cause of the entire economy. From which business decisions get help. The entire economy is very complex but business economics solves it with ease.It is helpful to understand that in this way. So we can say that business economics has a very important role and roel in business decisions.

12) Attempts to put out the friendly business: It guides managers to adjust to suit the external conditions of the business. It may be the typeof external environment such as government policies or business cycles and many other conditions which affect the business and give security business economics.