Managerial economics

Introduction

Managerial economics is the study of the production, distribution, and consumption of goods and services in the economy. Organizations have to choose what to produce and distribute to their customers with the available resources while on the other hand, the customer chooses what to consume. If society doesn't have to choose what to produce, distribute or purchase then the study wouldn’t be relevant. Managerial economics helps organizational management to make decisions regarding their line of production (Frank and Bernanke, 2012). The act of making decisions within the organization is a very important step since the decisions made can lead to profits or losses. Customers and organization management need to make decisions concerning the respective field. Today resources are very scarce thus making it important that resource management within organizations makes the right decision on what to choose and what to forego. Opportunity cost can be referred to as the value of the foregone alternative that can be chosen, but it’s not. All economies have to make choices by answering questions such as what to produce, how the available resources will be used to produce, who is the customer, and when the production is done (McDowell. et al. 2009).

Managerial economy is guided by the following principles, which include; business tradeoffs, the forgone cost for the value of another, the response of incentives, the cost margin benefits, etc. When different individuals come together in the market the aspect of tradeoff is manifested since each has a product that is not important to them but very important to the other person (Spiller, 2011). The main aim of this paper is to analyse and describe the concept of scarcity about opportunity cost from the perspective of managerial economics. The study will also narrow down on analyzing why scarcity is the centre of the opportunity cost concept.

Discussion

1. Does the opportunity cost of any decision value all relevant sacrifices in both explicit and implicit? Yes/No, Discuss.

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The ideology is scarce resources within the operation market lead to opportunity costs. The opportunity cost within an organization is what the management has to give up while making a decision that will add value. According to McDowell et al. (2009), the opportunity cost is where the management engages in alternative activities and gives up on other activities. Opportunity cost has a direct implication of scarcity within society, and although it is a very simple concept in organizations, it is very significant. Most individuals at times fail to make consideration while making decisions on what to forego against the other product or service they require thus getting disappointed at the end. According to Xenos, (2017), making economic decisions without considering opportunity cost can lead to an economic breakdown for both organizations and personnel.

Implicit cost is defined as the cost of activities that require money for payment while implicit cost is the costs that don't need money to be paid but are paid by the energy and time consumed. In microeconomics, opportunity cost includes both the implicit and explicit cost that individuals have to forego for the value of another (Wahbalbari et al., 2015). Opportunity cost is very fundamental to all consumer behaviours. The product foregone is the value of the products or activity chosen. A good example is a situation where an individual has to choose what to do with the amount of time they have, e.g. either watch a favourite program on television or spend the time revising for a test. If the individuals choose to revise for the test, it means that the time foregone for watching the program is the value gained from revising the test.

According to Sloman, et al. (2013), overpopulation has made resources to be very scarce. It is not possible for individuals to have everything they want and thus; they have to choose from what is available. They also have to make decisions on what to purchase since their resources are not enough to acquire everything they need. They have to sacrifice one product or service for another (Spiller, 2011). For example, a consumer spending a lot of money on the provision of food in the family means there is less money to spend on going out to the movies. With the concept of opportunity cost in economics have introduced the aspect of trade-off where a customer brings on board what they are no longer using to acquire a new and modernized brought, e.g., a vehicle. Opportunity cost helps in explaining that customer’ focuses on the activities that will perform better and forego the others. According to McDowell et al., (2009), managerial economics helps to explain the productivity in the economy based on exchanging a more specialized product for the less specialized one. The specialization nature in the production of goods and services is known as comparative advantage.

In business, the quantity concept enables individuals to identify and understand the alternative that they forego when it is not immediately apparent. Although there are people who make decisions depending on the cost-benefit analysis, the foregoing action should only be undertaken if the activity or product has better and more significant benefits in terms of the extra cost incurred (Frank and Bernanke, 2012). Most people ignore the implicit cost. Therefore, I do agree that the opportunity cost of any decision is the value of the sacrifices made by individuals in both explicit and implicit conditions. Although economics suggest that customers should always consider opportunity cost, it is that they incorporate it into their day-to-day activities (Spiller, 2011).

2.????? According to economics, there is no "free lunch." What do you believe is the meaning of this statement? Discuss

In economics, there is a phrase that states that "there are no such things as free lunch in business." This means that even if an individual paid your bill in a certain meeting, it is not free since you also invested in terms of time and energy. According to Friedman when an individual chooses to have a meal with you and pay all the bills, it does not necessarily mean that the meals were free. There is nothing like free lunch in the economy, the moment one chooses to go out for lunch with you; they also incur cost in terms of time and energy. Time is money; if the person did not come for lunch, it means they would be undertaking another significant activity (Brundenius and Torres Pérez, 2015). Life is, and individuals have so many activities to undertake in the available time. They have to forego some of the activities for the value of the other activities chosen. The awareness of the cost associated with the individual's behaviours is essential since they offer individuals with a better platform to make decisions in the day to day life (Xenos, 2017).

To clearly understand the concept of no free lunch we are going to consider the case of Cuba whose economy has undergone various changes over the years. Over the years, Cuba had no one to save them basically because they had nothing to offer to other global marketplaces (Brundenius and Torres Pérez, 2015). Although the country used to enjoy growth due to the collaboration with other superpower countries this came to an end when the country broke the economic bond in the year 1992. The breakage of the economic bond affected the country's economy negatively since they could not produce without the raw materials that could not be accessed in their local market. After the country lost the socialist market, Cuba suffered a long process of trying to adjust to the new conditions where there was no international market. Due to dependency, the country deteriorated in terms of the supply of materials for production. Organizations have nowhere to acquire raw materials and other resources required in the production process (Brundenius and Torres Pérez, 2015). Therefore, in the end, most of the business organizations had to close down since they could not meet the needs of their customers. Those that dint did not close down had to divert the available resources to create products and services that would meet the customer's needs. Having an economic bond break means the country can't access raw materials from other countries to produce goods and services unless they produce using locally available resources. Although the local resources can produce products, the country can’t trade with other countries, which is a negative impact on the business environment.

?To recover the situation and ensure that there is continuous economic growth, the country's government should create strong institutions that are equipped with skills and capacity to influence others to deploy theirs autonomously in the economy. The institutions can maximize all the transaction costs rather than creating different layers of inefficiency within the organization. The country has had an economic crisis due to a high rate of dependency on imported inputs and a lack of short-term access to other markets across the globe (Wahbalbari. et al., 2015).

One can only acquire something for nothing if previously, they had also acquired something for nothing from the same individual. If there is a situation where one thinks they are getting something for nothing, it is because someone is paying at the end of it all (McDowell. Et al. 2009). Where there is no direct cost, there is an associated social cost. Individuals may benefit for free from the external view, but internally someone has to pay the cost for others to benefit from the services and products offered in the public domain for free. Therefore, I believe the saying “there is no free lunch” one has to pay something in terms of money, social, time, etc.

3.????? Explain the significance of the scarcity concept to the concept of opportunity cost. Are the opportunity cost and sacrifice the same thing? Would you say that a sacrifice represents the cost of a particular decision

In the business world, all economics faces different constraints due to the scarcity of resources. The limited resources available can’t satisfy the unlimited customer’s wants and needs. The concept of opportunity cost is seen when one of the economic agents be it a customer or organization management has to choose between the alternatives in the market (Frank and Bernanke, 2012). Opportunity cost is the next best thing that one has to forego for the value of the chosen product or service. It is a very important concept in the economy across the globe since it helps the concerned parties to make cost-benefit decisions while undertaking a project.

There is a limit in resources available in terms of quantity to be utilized in the economy. The concept of quantity leads to the aspect of pricing of goods and services within the market. If there is no scarcity of resources and raw materials, products and services would be free and available everywhere. The concept of opportunity cost is related to scarcity since both the producers and the consumers do not have limited resources to operate smoothly in their day-to-day activities (Spiller, 2011). The exchange of products from producer to consumer something has to be foregone for the value of what will be attained. Therefore acquiring one product one has to forego the other.

Therefore, we can say that opportunity cost and sacrifice are not the same thing. There tends to be an essential difference between the two. The opportunity costs are bidirectional, For example, an individual who gives out products worth a1000 dollars to the needy in society foregoes an opportunity cost since the 1000 dollars would have been spent on luxurious activities but chose to help the needy. On the other hand, When another individual pays the same amount of money for luxurious activities such as going on vacation also suffers an opportunity cost by not being able to help the needy people (Jones and Sloman, 2017). According to the two parties, they have foregone one thing for the value of another, so there is an opportunity cost. Not helping the needy in society and not going on a vacation does not mean that either party is wasting a lot of money, which would be used to undertake other essential things (McDowell. Et al. 2009).

Sacrifice can be said to be a moral concept while opportunity cost is not. An individual who undertakes an initiative to help the needy in society encourages others to live, and according to society, these individuals deserve praise because they sacrificed. Nevertheless, that does not necessarily mean that those who choose to go for a vacation deserve condemnation. Both the activity justifies the meaning of sacrifice depending on what the part deems essential.

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4.????? Why the concept of scarcity is central to the study of economics.??

Economics is a social science that responds to regular questions that arise from existing economic problems. Scarcity is what makes economics an important social science. Organizations have to produce products and services that society demands whereby the demand is usually greater than what is produced. The what? why? and when? Questions are asked by organizations to determine the demand in the target market? (Xenos, 2017). These questions are essential in helping the management to reflect on the best decisions relating to the scarce resources. Therefore, the concept of scarcity is very important in the study of economics. According to Rosly, scarcity means that resources available in the economy are insufficient to meet the unlimited needs of customers across the global market (Wahbalbari. et al., 2015). Therefore, demand can never balance with supply in the business environment given that resources used to purchase the products and the raw materials used to produce them are scarce (Xenos, 2017).

Scarcity is related to how efficient and effective organizations are in utilizing the available resources to produce different products and services. Scarcity enhances prioritization in the market since individuals will make decisions on what to have and what to forego since there are not enough resources to acquire everything that one desires. Today individuals choose to have what is of higher value and forego the less important product or service. Economists are researching the best ways that can be used to attain an equilibrium state in the market and ensure that the amount of products they produce is the same amount that customers are able and willing to buy in the market (Jones and Sloman, 2017). The scarcity of resources raises economic problems around the world not only in developing and developed countries. The scarce resources have various resources, e.g., land can be used as a park, construction of an industry; farming, etc. Different entrepreneurs will identify the land as an opportunity but for different uses where they can satisfy the customer's need. Scarcity creates the need for customers to trade off within organizations (Wahbalbari. et al., 2015). A trade-off is situational decision-making where individuals have to lose one quantity to gain another one on their list. Generally, one thing has to decrease so as one to increase. One has to give something in return on what one acquires (Xenos, 2017). Every good and service that consumers want will cost something since the production resources are very scarce. In the tradeoff technique, there is both a disadvantage and an advantage situation.?

Opportunity cost is the foundation of economics which should always be considered while making decisions (Spiller, 2011). Individuals identify the opportunities by considering the alternative benefit of using another product. Therefore,? If one fails to consider the opportunity cost while making decisions, they may not achieve the desired results. Research shows that people who consider opportunity costs before making final decisions obtain favourable outcomes compared to those who neglect them in their decision-making process (McDowell et al. 2009). Personal and organisational bankruptcy is associated with the negation of opportunity costs while making decisions. In society, some individuals spend their income on automobiles, and housing forgetting that there are other expenses. In the end, they are left with insufficient money to withstand other important events.

Conclusion

According to the study above, it can be concluded that managerial economics is a fundamental social science that helps members of the economy to make better decisions due to the scarcity of resources. With the nature of scarce resources today, organization management has to make necessary decisions, e.g., on what to produce, when and how to produce. They have to forego some activities over the value of the other option in the market. If there is no option to sacrifice on the market, there is no cost. Apart from sacrificing the alternatives, the managerial economists are guided by other principles that include: trade-off, evaluation of margin benefit, etc. ?Managerial economists believe that there is no free lunch if one party is offering one product the other party has to provide something in return even without their knowledge. It is important to note that when one is acquiring something for free there is a social cost involved or when a product or service of offered for free in the public domain there is someone who has to pay so that others to enjoy them. The aspect of scarcity of resources in the economy offers a platform to understand that organizations can meet all the needs of the customers by supplying the same amount of products that their customers need. Therefore, at any point, the economics participants will have to forego one product for the value of the other alternative. Thus, the opportunity cost is all-rounded in every aspect of the economy.

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References

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