Managerial Economics combines theory

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Managerial Economics combines theory and practice to execute an efficient and therefore profitable business. It is most effective if used in a market economy. This is because economics is only applicable if certain assumptions are present. People act different in market economy verses a socialist economy. If the market sets the price through supply and demand then people will act one way and if there is a limit to the price that can be charged than market participants or people will act another way. So a manager can use the practice of managerial economics to decide where to allocate resources to run the business in the most efficient or profitable way. A manager has many factors that are organized to run a business. They may have things like inventory, labor, pricing, ect. A manger needs to use these items efficiently to maximize profit. When deciding how to utilize these resources there are many variable that need to be considered. Most can be explained or addressed with economic theory. When a manager sets pricing for a product they need to consider factors like seasonality, competitor pricing, cost to make. If these factors are addressed in the most efficient way the better possibility for profit. Managers need to know what will happen to sales if they raise prices. Does the demand fall? Does more competition come in? The manager will use managerial economics to decide how to set the price considering certain factors in order to maximize profit.

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