Managerial Economics: The Demand & Supply Model Managerial economics is the application of the economic theory using quantitative and statistical tools to analyze how organizations can achieve their aims and objectives. In other words, the managerial economics use the decision science analysis using the econometrics and microeconomic theories to analyze how organizations can achieve their aims and objectives efficiently by maximizing their profits through the combination of inputs such as capital, skilled labor, and raw materials. The managerial economics is also concerned with the ability of firms to manage legal constraints such as health and safety standards, minimum wage laws, and pollution emission standards. Similar to the private organizations that seek to maximize profits through the managerial economics, the non-profits organizations also face some constraints when attempting to reach their goals, however, the constraints may differ from a case to case. (Bhat, & Rau, 2008).

The objective of this paper is to investigate the strategy of using the managerial economic tools to arrive at optimal solutions.

Use of the Managerial Economic Tools to achieve Optimal Solutions

The managerial economics combines the applied economic tools with administrative and business decisions using the macroeconomics, macroeconomic and mathematical models. Typically, the managerial economics can be applied in both private and public organizations using the macroeconomic concept to solve the real-world problems such as making the best pricing decisions in different competitive business environments. In the competitive business environment, firms seek to maximize their profits subject to the limitations of inputs such as land, labor, raw materials and capital as well as legal constraints such as pollution, health and safety laws and wage laws. (Townsend, 1995).

The managerial economic concept identifies two type of firms: the price setters and price takers. The price taking firms do not have resources to set prices for their products, thus, their product prices are set by the forces of demand and supply. On the other hand, price setting firms have the ability to set the prices for their products. These categories of firms have enough market powers to raise the prices of their products without losing sales.

Moreover, the managerial economics discusses the theory of market. A market refers to the arrangement by which sellers and buyers...

Moreover, the managerial economics assists management to study the variables that influence the demand for a product before making a decision to produce a quantity of the products. For example, income, prices of goods, tastes, and number of consumers are the variables that should be considered before producing a quantity of goods.
Typically, the market forces reduce the transaction costs that could have been incurred for the transaction of goods and services. Moreover, the managerial economics study the market structure where there are a number of firms with various degree of sizes in the market. In the market, there is a degree of product differentiation and there is a likelihood of a new firm to enter the market. Moreover, managerial economics influences the management decision about whether to operate in a perfectly competitive market environment, oligopoly or monopoly.

In a perfect competition, there are a large number of firms with the undifferentiated product, and there is no barrier to entering the market. Under the theory of monopoly, there is a single firm operating in the market, the firm produces goods with no close substitute and are protected by the barrier to entry. Under the theory of oligopoly, there are few firms in the market and profits are interdependence, and the profits of one firm affect the profits and sales of other firms. For example, the Smart Phone markets are dominated by a few companies such as Apple, Samsung and Google. In the United States, few companies in the pharmaceutical industry have formed oligopoly using the staggering costs of marketing the new drugs as a barrier to entering…