By definition, managerial decisions are choices between at least two alternatives. For example, should I hire another salesperson or not? In order to compare the profit impact of various alternatives, we need to use what-if analysis. The results of such analysis are never right or wrong, but enable a discussion about the most critical variables to be considered.
- By definition, managerial decisions are choices…between at least two alternatives.…For example, should I hire another salesperson or not?…Should I open three branches or five?…Should I buy the new machine, outsource the production,…or buy a production company?…In order to compare the profit impact…of various alternatives, we need to use what if analysis.…For this I will share with you an experience…from my family's restaurant business.…Together with my three siblings,…I pretty much spent my childhood at table 11,…watching my parents running the business…and trying hard to keep us busy with all sorts of chores.…
While the restaurant was well-known in the region,…advertising was important to attract new guests…and to invite back our loyal customers.…My father spent about 20,000 francs per year…on all advertising, including flyers,…newspaper ads, and events.…We had about 5,000 guests who visited the restaurant…an average of six times per year…with an average consumption of 30 francs.…In addition, my parents hosted about 80 parties,…
- What are customers buying? (demand theory)
- What should we produce? (production theory)
- Which costs do I need to worry about now? (cost theory)
- What market am I in? (competition theory)
- What should we charge for it? (pricing theory)
To understand what managerial economics looks like in practice, Stefan explains how Google's auction-based advertising system employs the principles of game theory and how understanding this can help decision makers to outmaneuver their competitors.
- Using economics to solve business problems
- Understanding price elasticity
- Demand curve shifts
- Economics of scale vs. scope
- Break-even and what-if analysis
- Profit maximization
- Economics in action