Approach to managerial Decision making
Approach to managerial Decision making OR Application of the Theories of Economics in Business Decisions The following are the main theories in economics that help the firm in the decision-making process. Theory of Demand Demand theory explains the consumer’s behavior. The theory helps to understand the behavior of consumers when the determinants of demand such as income, taste and fashion, prices of substitutes etc change. Knowledge of demand theory is vital in the choice of commodities for production. Theory of Production The basic function of a firm is to produce goods and services and sell them in the market. Production requires employment of various factors of production. The factors are substitutes among themselves to a certain extent. To maximize production and profit, it is necessary to achieve the least-cost combination of factors. Production theory is of immense use in determining the size of the firm, the size of the total output, and t...