Question

The importance of managerial economics extends throughout any business of all industries. The evaluation and understanding of the production, distribution and consumption of the company’s product (good or services) must be carefully analyzed so the business management can meet the business’s expectations and goals to be successful. This can apply to day to day life as well. A real-life example of how economics can be used to improve decision-making that I experienced recently was when my family had to make the decision on whether or not to buy soy bean seed or corn seed for the spring for our farm. The cost of seed for soybeans and corn, chemicals used such as fertilizer, herbicides, and insecticides, fuel for farming equipment, the time it would take to plant each crop, and ultimately the predicted pay back that my family would receive after the crop is harvested. This year, my family planted corn and the profit from harvest was not as high as it could have been if soybeans would have been planted. After analyzing the cost of seed, cost of chemicals that would be used, general expenses such as fuel for the tractor to plant the seed, combine to harvest and the tractor to disk the field after being harvested, and ultimately the predicted pay back after harvest, my family chose to purchase soybean seed for this coming planting season. I feel as though farming in itself is a gambling business because so many factors go into the production of the crop such as the time it is planted and how it is affected by the weather each year. However, after analyzing the financial factors of which crop seed to purchase, I believe my family made a wise choice in purchasing the crop that has been having and is still predicted to have the most profit.

Please provide a 100 word response to the post

Answer 1

Managerial economics applies economic principles to managerial decision making. Since it is a much wider concept, it is not only useful for managers but also applies to our day to day decision making. The above example explains the application of choice of strategy to be adopted in order to maximize efficiency in the farming business.

While selecting the type of crops to be grown, the family considered various factors affecting the output such as cost, various factors of production and their productivity and the time involved per unit of seed planted. In order to more accurately decide the choice of crop, the family would have additionally considered the following factors:

1. The gestation period of each crop [which is lower for soybean, hence early returns]

2. The market price

3. Cost of labour

4. Perishibality or Shelf life of the crops [ corn is highly perishable and requires quality maintainance while storage] .

5. Water requirement and weather specifications.

6. Weight of the finished product and its the distance of the market from the farm [transport costs]

Considering the above factors, the family might have chosen soybeans in the first place itself. Although farming is a gamble, but a right strategy adopted can minimize the risks of loss.