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 BUSI 620-WEEK 7 -  Managerial Economics 

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How can an Understanding of Managerial Economics help Managers in Global Business Environment?

The primary reason for writing this research paper is to identify and discuss the importance of managerial economics in global business environments. This paper focuses on how managers of institutions can use managerial economics knowledge to effectively and efficiently run those organizations successfully.

            In order to complete the research, data was collected from various organizations, including banks, freight companies, and food manufacturing companies. This was done through administering questionnaires which were promptly responded to by different departmental managers of those institutions. Similarly, secondary methods of data collection were employed, involving the review of journals and business reports. These provided an insight into the relevance of managerial economics to the dynamic face of the global business environment.

            After data analysis, arguments have been made that managerial economics plays a vital role in combining economic theories with practical business problems, thus helping to formulate decisions. Further, a manager who is well equipped with principles of managerial economics has analytical skills to make projections in the world of the uncertain business environment. The forecasts are on economic quantities like profitability, capital, operation cost, and growing demand base.

            As such, the work concludes by acknowledging the critical role of managerial economics in recent times as institutions seek leadership that is visionary and remains proactive in the tide of business uncertainty, thus laying emphasis on managers who can make sound decisions based on economic theories and principles to tackle practical organizational problems.

Introduction

Managerial economics relates various economic theories to organizational practices and seeks to bridge the gap between logic problems that intrigue economic theorists and policy problems facing practical managers (Waykole, 2013).  Through managerial economics, managers of organizations acquire analytical skills critical in logical structuring of their organizations' issues and coming up with viable solutions to these economic problems. Similarly, an adequate understanding of managerial economics plays a critical role in managers' decision-making process after careful analysis of the prevailing conditions, thus helping in the efficient and effective operation of business regarding resource allocation.

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In a recent research study conducted by Mamanshetty (2018), the author points out that managerial economics is an essential part of scientific research. It directs scarce resources to manage cost-effectively. In essence, organizations' unlimited needs are addressed using scarce resources; thus, deciding to allocate resources for the competing ends requires analytical skills. This makes managerial economics relevant to decision-making in global business environments.

            Therefore, this research paper seeks to examine managerial economics's role in the dynamic face of the worldwide business environment. As the business environment faces new challenges brought about by bottle-neck competitions, managers must remain proactive in their decision-making approach. This is only possible when they have prerequisite knowledge of managerial economics and analytical skills to make informed decisions for the company's future.  

Background of the Study

            One of the primary objectives of business organizations and enterprises is to maximize revenues. For the long-term realization of this objective, the business must make decisions from time to time to realign its course of action to the intended outcomes. Several alternatives are presented, from which the management executive selects the best method of actions (practices) to be implemented going forward. To make sound decisions, the management executive should be equipped with individuals who have a vast body of knowledge and experience in economic management and evaluate the primary variables playing out in the global business environment, as illustrated by Waykole (2013).

            Business enterprises' sustainability requires that there should be an integration of fundamental economic theories that provide a framework within which such decisions are made for every business decision made. Achieving this requires that managers are concisely aware of economic theories, thus applying them in management practices to solve real business problems. Further, the rapidly changing landscape of the global business environment calls for managers to embrace forecasting skills by using various models to enable their organizations to remain firm and uninterrupted by the emergence of new economic challenges (Rao, 2017).  

            In recent times, there has been intensified interaction among various factors that directly affect the business environment. In his work, Rao (2017) acknowledges the sweeping changes in the global business environment and attributes them to the rapid technological advancement, intensified international trade politics, social and cultural aspects. In addressing these challenges, he asserts that organizations require skilled leadership that can effectively combine economics with these practical problems to produce long-lasting solutions. Therefore, an emphasis is laid on having organizational managers who recognize the need for managerial economics and have the required analytical skills to aid the decision-making process. Similarly, many organizations seek inspired leadership and individuals with a vision capable of bringing fundamental changes within the organization and from outside to facilitate its growth and excellence in the 21st century.  This paper aims to conduct in-depth research on the essence of managerial economics in a global business environment with this revelation. A business organization with competent managers who understand managerial economics is likely to survive the business environment's competitive nature. This is because the management executive's decisions are likely to be well informed following a detailed analysis of the economic theories and courses of action, taking the best from the alternatives. Understanding managerial economics is essential to managers since it is key to making informed decisions, as discussed in the latter sections.

Methodology

            In conducting this study, the data collection methods mainly involved secondary methods. Several peer-reviewed articles were analyzed and business insight reports of various organizations. Similarly, business documents, technical and trade journals were reviewed and analyzed to extract the required information. The role of managerial economics in the business environment has been explicitly discussed, referring to these previous research studies.

            Some primary methods of data collection were also used for the task. Structure questionnaires were sent to managers of various organizations through emails, seeking to get their response on the role played by managerial economics in the global business environment.

During data collection, open-ended questionnaires were sent to various departmental managers via emails. The following three organizations were contacted:

1. Morgan Stanley Bank. This is a U.S. Bank with branches in over 40 countries globally.  It has more than 50,000 employees and had net revenue of $ 9.5 billion in the year 2020.

2. Werner Enterprises. Werner Inc. is a freight logistics company based in the U.S. It has 24,000 trailers and 7,800 tractors used for international transportation. It reported a revenue of $ 620.30 million for the quarter ended December 2020.

3. . Tyson Foods is a U.S-based food manufacturing company.

To facilitate the collection of adequate information from these experienced managers, open-ended questions were fashioned to allow the respondents to provide supplementary information that might help the research. It should be noted that most of the data collected was qualitative since it was exploratory, subjective, and sought to clarify the depth of understanding. After that, the obtained data cleaned to remove redundant information coded for the purpose of classification and analyzed to make meaning out of the responses.

Results and Discussion

Managerial economics is underpinned by several economic concepts and techniques in the decision-making process (Kaushal, 2017). Understanding and applying these concepts is key to the successful operation of a business entity.

According to Mamanshetty (2018), managers should be well-equipped with economic concepts to estimate the economic relationship between various factors like income, elasticity, and demand. For instance, a food production company manager should understand how demand elasticity relates to changes in multiple variables. If two products are used together (complimentary), like in fuel and car, an increase in one product's price results in different demand elasticity compared to substitute products, say, coffee and tea. This knowledge is essential not only in decisions on the price of commodities but also in marketing. For example, supermarkets and retail shops place related items close to each other to increase sales by suggesting what a consumer should buy next.

Following the responses obtained by the questionnaires, managers gave insight into the role played by managerial economics in the prediction of relevant economic quantities. Managerial economics is essential in equipping managers with skills to make accurate predictions of cost, profit margins, required capital, and the likely demand. This can be done through the projection of business operations shortly and gauging the likelihood of attaining these projections. A business organization that seeks to expand its operations globally may decide to preset its business plan to potential investors and even sponsors. In doing so, it may be appealing to accompany these business plans with future projections like profit margins for the next five years and even the customer base's expected growth. This instills trust in investors who need to evaluate risks based on real numbers presented by the manager. The prediction of these economic quantities is a fundamental aspect of managerial economics that will help international business organizations navigate safely through the rough tides of the global business environment. 

As outlined earlier, managers function in an environment of uncertainty with new challenges emerging every day. To adequately address the rising challenges, economic concepts must be integrated with the managerial practices to provide a clear framework within which decisions are made. These economic theories are essential as they indicate the relationship among various factors affecting the business, both internal and external. Further, they provide a detailed understanding of significant external factors that influence the firm and must be evaluated based on their merits during decision-making. For instance, a food manufacturing manager would be expected to understand how various government policies affect the business' operation. Based on this, adjustments must be made to review its policies and programs in light of the new government directives. This should be backed up with explicit economic knowledge, aligning the new policies to the firm's initial objectives. Also, the manager should clearly understand the financial implications of the new government directives and what they portend for the industry's future at large. As such, it can be seen that managerial economics is essential in a business environment both locally and internationally.

            In economics, a detailed analysis of economic systems of various nations and business cycles is done. Similarly, the fluctuations in national income, variation in production rates over different times of the year, industrial policies of the government, and global economic recessions are critical areas covered in economics. These areas are of great relevance to the management of economic systems and profit-driven organizations. Therefore, such an institution's manager would work more effectively and efficiently when they are knowledgeable about these pertinent issues in finance. However, the dynamic face of business environments also requires that managers embrace technology and remain proactive in implementing policies to cushion them during hard times where hard economic decisions have to be made. As part of institutional excellence and sustainability, forecasting is key to addressing unforeseen challenges based on vibrant economic principles. From the preceding, it is therefore right to say that a manager must have the financial knowledge to make sound business decisions.

            Perhaps one of the most useful tools in managerial economics is its influence in decision making, as postulated by Mamanshetty (2018). The author asserts that managerial economics has played a fundamental role in directing scarce resources to manage cost-effectively through informed decision-making.  In pointing out the relationship between economics and organizational decision-making, Mamanshetty (2018) developed the figure below to illustrate this relationship.

 

 

 

Managerial Economics Decision Problem

Economic Theory: Demand, Supply, Cost, Market, competition

Quantitative techniques, mathematical, econometrical models

Under managerial economics

Application of economic theory and quantitative techniques to solve managerial decision problems

Optimal managerial decision making

Figure  SEQ Figure \* ARABIC 1. Decision-Making in Managerial Economics. Source: CITATION San18 \l 1033  (Mamanshetty, 2018)

 

          Many companies and business enterprises have adopted managerial economics’ established principles to increase their revenues and improve profitability. These based tools and techniques have practical applications when dealing with real-life business problems upon which career-changing decisions have to be made. Therefore, a manager needs to be equipped with relevant knowledge in economics to successfully and conveniently steer an organization into the future.

 

Conclusion

This work has presented the relevance of managerial economics in organizational management practices. A research study was conducted in which data was obtained using both primary and secondary methods. A candid discussion has been laid out on the role of managerial economics in a global business environment. In doing so, an argument has been developed that emphasizes economics’ critical role as a subject in the successful management of enterprise's operations.

A manager with economic skills is seen to remain proactive in addressing the business environment's adverse challenges. This is possible through the projection of economic quantities like profit, cost, and demand based on analytical skills. This is vital as the business cushions itself against future uncertainties. Similarly, those who understand the relationship between external factors and business operations are likely to make informed decisions after evaluating these factors and their influence on business operations. As such, the decisions made, especially those accompanied by changes in business policies, are likely to be aligned to the business's long-term objective with as little interference to profitability as possible.

From the proceedings, it is clear that those managers with economic, managerial skills stand higher chances of successfully guiding a business in the changing times of the global business environment than their counterparts who lack the required knowledge in managerial economics.

 

 

 

 

 

 

References

Kaushal, L. A. (2017). Principles of Managerial Economics.

Mamanshetty, S. V. (2018). MANAGERIAL ECONOMICS TAKE DYNAMIC BUSINESS DECISION-MAKING PROCESS. International Journal of Research in Economics and Social Sciences, 8(2), 232-235.

Rao, S. (2017). Role of Management in Today’s Changing World Environment and Emerging Challenges of Organizational Behaviour. International Journal of Pharmaceutical Sciences and Business Management, 1(1), 72-81.

Waykole, M. (2013). Role of Managerial Economics in Competitive Edge Dynamic Business Decision-Making Process. Asia Pacific Journal of Marketing and Management, 2(1), 136-139.

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