Managerial Decision Making: It is a good idea to start any discussion of managerial decision making with a step back to think about decision making more generally.  Most students will be aware that economics is the science of making decisions in the face of scarcity, but a brief reminder that this involves personal and private decisions, along with the more obvious decisions that take place in the context of a firm or government agency is worthwhile.

 

With that reminder out of the way, the focus can shift to what makes managerial decisions worthy of the focused study that will take place in this course.  There are a number of dimensions to highlight including the complexity of the modern firm, the role of government regulation in the marketplace, the difficulty inherent in managing a large group of diverse constituents, etc.

 

It is also a good idea to discuss how managerial decisions are, or should be, made.  Good decision making involves first identifying the goals and constraints of the firm.  In most cases the goal is profit maximization and the constraints include things such as regulatory environment and market structure.  A second step is to acknowledge and understand the role of prices, costs, and profits as signals to the firm about the returns associated with various options.  In addition to the obvious, direct effects of any decision, a third step involves identifying any unintended consequences or collateral effects of the decision.  Finally, implementation typically takes place through the judicious application of marginal analysis.

 

This summary of managerial decision making provides many opportunities to highlight the contributions of most of the chapters in the rest of the text and serves as a summary of what’s to come.