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Managerial Decision in Economics - Research Paper Example

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Managerial decision in economics Table of Contents Executive Summary 3 Definition 3 Factors or Costs 4 Measurement 6 Analysis 8 Summary 9 Reference 11 Executive Summary The main aim of an organization’s existence is to generate profits. Classical theories suggest that firm’s must gain value from every unit of sot that is being spent…
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Managerial Decision in Economics
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Download file to see previous pages The study tries to unearth some of the aspects of managerial economics towards the decision of hiring by evaluating the various micro economic factors relevant to the case so as to formulate a set of plausible recommendation on this crucial aspect of managerial decision making. Definition Hiring of workers largely depends on the dynamics of the demand and supply aspects of the economy and the market. In a perfectly competitive market the hiring of labor is largely determined by the intersection point of the demand and supply curve of labor. The wages of these employees are also determined by the intersection of demand and supply for labor in a market. The demand for labor is numerically equal to the marginal revenue labor product. The marginal revenue product refers to the total increase in the firm’s revenues that occurs due to the aspects of hiring a new labor or other resource that is largely variable in nature. The demand for labor is largely determined by the consumer demand for gods and services for a firm. This constitutes the derived aspects of determinant of the demand for labor. The labor supply curve shows the number of laborers that are willing towards working at specified rates. A firm operating in perfect market conditions hires workers until a point when the wage rate of laborers becomes equal to the marginal revenue product (Tucker, 2008, p.191). In order to tide over situations of increase in demand in the market firms normally resort to hiring of temporary workers to tide over the need for increased supply of workers to meet the equilibrium. However this does not appear be a formidable solution as the demand of products is likely to stabilize and that the company would need extra laborers to satisfy the customers. Hence it would be better to hire new permanent workers that would be beneficial in the long run. Factors or Costs Costs form the most important aspect for companies while undertaking a hiring decision. Most often business organizations take up a cost benefit analysis of the marginal cost of hiring a labor with the marginal benefits being offered by the hiring of a new additional worker. The main aim of a business organization is to make profits to satisfy its shareholders. Hence analyzing cost becomes important while undertaking a decision to hire a new worker. Firms undertake a hiring decision when the marginal benefit becomes greater than the marginal cost. Employing an additional resource in the organization would lead to the generation of an additional unit of output. However firms must realize that profit comes from marginal revenue and not marginal output. This calls for a delicate balance between marginal benefit and marginal cost. Only under conditions of the marginal revenue increasing a firm takes a decision to hire a new worker. In other words the marginal revenue product must be equal to the value marginal product (Gwartney, Sobel & Macpherson, 2006, p.537-539). Figure 1: Demand Curve for New Resource (Source: Gwartney, Sobel & Macpherson, 2006, p.539) The figure above shows the labor demand curve as a function of the cost of hiring a resource. The curve provides an idea about the marginal revenue product of a particular resource employed by an organization. The graph takes a downward movement as the marginal product would fall as the resource is used ...Download file to see next pagesRead More
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