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Discuss how managers use microeconomics for decision making

Latest posts by Prudence K. Magezi(see all)

    The success of any business is highly dependent on good decision-making. This is because a country’s macroeconomic parameters have a notable impact on all businesses operating in the country. Be it the cost of capital, national and international demand for products and services as well as investments, acquisitions, and profitability, they are all influenced by a country’s macroeconomics. Each and every business is embedded in the general economy and cannot under any circumstances escape its fortunes and deviations.  It is thus essential for managerial decisions to be made with macroeconomic parameters in mind. In fact, managers should be able to adequately analyze macroeconomic factors in order to ensure that they are making effective organizational decisions. 
    This report discussed why it is important for a manager to consider macroeconomics while making business decisions.
     

    HARVARD
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    APA
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    MLA
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    CHICAGO
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    Case Study


    Key Learning Outcomes

    By the end of the case, students should be able to:

    • Discuss how macroeconomic constraints can decrease or increase product demand 
    • Discuss how microeconomic factors affect the demand for products/ services and how managers can use them to make better business decisions. 
    • Understand the economy as a whole and the impact of fiscal and monetary policies on individual businesses

    1.0 INTRODUCTION


    For a leader to be considered effective, he or she must have the ability to handle a number of challenges and threats that affect an organization’s optimal performance (Smith, et al 1997). This is mainly because many of the decisions faced by business leaders are intricate and have the potential to put the future of a company at stake. Business leaders use microeconomics in decision-making to help them understand the economy as a whole and the impact of fiscal and monetary policies on individual businesses. By understanding this information, business leaders are able to make more informed decisions about their operations. The study of microeconomics provides an analytical tool to examine the market mechanisms and helps business firms to take decisions about their production and pricing policies. 
    The study of microeconomics helps managers understand how best to allocate resources in the production of various goods and services especially at a time when productive resources are scarce in the economy. It helps them decide on what products to produce, how much to produce, and for who. Assessing microeconomics helps businesses to forecast demand for their products/ services. This is because the demand for a company’s products/ services is dependent on many variables; the demand for products changes in response to changes in a firm’s product prices, prices of substitutes or complementary goods, consumer income, changes in tastes and fashion, expectations about future changes in price, changes in demographics, and change in total population, among others. Considering the fact that macroeconomic constraints have the potential to decrease or increase product demand, decisions made by company managers can expand or reduce production. 
    The study of microeconomic theories and concepts is thus very important in managing a firm’s operations because it helps in understanding the market situations better and helps the managers or business owners to successfully operate their firms, predicts future demand, and make decisions based on different microeconomic variables. 

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