week 2 discussion

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There will be two discussion questions listed below. just choose 1 out of the 2.

 Use the lessons and vocabulary found in the reading. Support your answers with examples and research and cite your sources using APA format.

Discussion Question 1:

Many factors affect the demand for a product, which is a concern for management and the decision-making process. To correctly assess the demand for their products, managers must determine the effect of all relevant variables. Select a particular industry or product and define the following variables:

  • Inferior versus normal goods
  • Substitution and income effects
  • Derived demand
  • Changes in real and projected incomes

Discuss how these variables can affect the demand for your product or industry and what methods could be used to estimate the effect of these variables. Justify your answer.

Discussion Question 2:

As a manager, when you are making decisions for the company, you need to consider the distinction between how the decisions will impact the company in the short term and in the long term.  Describe the information needed to make these decisions.  What tests can you run to help make your decisions? Justify your answer.

respond to the two  classmates’ postings discussion 

Elasticity Concept.html

Elasticity Concept

“A measure of responsiveness used in demand analysis is elasticity.  The concept of elasticity simply involves the percentage change in one variable associated with a given percentage change in another variable. Elasticities are often used in demand analysis to measure the effects of changes in demand-determining variables. The elasticity concept is also used in production and cost analysis to evaluate the effect of changes in input on output, and the effect of output changes on costs. In finance, elasticity is used to measure operating leverage “(Hirschey, 2009, 170).

“Factors such as price, product quality, and advertising that are within the control of the firm are endogenous variables. Factors outside the control of the firm, such as consumer incomes, competitor prices, and the weather, are exogenous variables. Both types of influences are important. For example, a firm must understand the effects of changes in both prices and consumer incomes to determine the price cut necessary to offset the decline in sales caused by a business recession. Similarly, the sensitivity of demand to change in advertising must be quantified If the firm is to respond appropriately to increase in competitor advertising” (Hirschey, 2009, 170).


Hirschey, M. (2009). Fundamentals of managerial economics, (9th ed.). Boston, MA: Cengage Learning.

“The price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of the product itself. With elastic demand, a price increase will lower total revenue and a decrease in price will raise total revenue. With unitary elasticity the effect of a price change is exactly offset by the effect of a change in quantity demanded and total revenue is constant” (Hirschey, 2009, 185).

Utility Theory.html

Utility Theory

Economists use utility theory to study consumer behavior in an effort to explain why consumers will purchase more of a company’s goods only if the prices are lowered. In other words, basic utility theory explains that as you consume increasing amounts of a product, you receive decreasing utility from each additional unit consumed and must be motivated to consume even more of the product. This concept is called the law of diminishing marginal returns. For this reason, a company has to convince potential buyers that they will gain utility from buying more of its product.

“Substitutes are goods and services that can be used to fill a similar need or desire.  Goods and services that become more desirable when consumed together are called complements. Going to the movies and renting a DVD are close substitutes. At the same time, many consumers like to consume buttered popcorn and soda at the movie theater. Movies, buttered popcorn, and soda are often complements” (Hirschey, 2009, 156).

“Insight into the indifference curve concept can be gained by considering what indifference curves look like for the logical extremes of perfect substitutes and perfect complements. Perfect substitutes are goods and services that satisfy the same need or desire. Perfect complements are goods and services consumed together in the same combination” (Hirschey, 2009, 156).


Hirschey, M. (2009). Fundamentals of managerial economics, (9th ed.). Boston, MA: Cengage Learning.

Economists use indifference maps to explain consumer buying habits in terms of the concept of utility. It is important to remember that budget is a constraint for most consumers, forcing them to select different combinations of the goods in question in order to reach the highest level of satisfaction, resulting in the highest indifference curve.

CVP Analysis.html

CVP Analysis

Management can use CVP analysis in many areas. This analysis is referred to as break-even analysis because it tells managers much more in addition to determining the break-even point of an operation. The CVP analysis tells management a great deal of information including the relationships between the revenues, costs, and profits of a company. It is especially useful to management when determining what the cost structure of the company should be in the long term (or the planning period).

A basic CVP model shows fixed costs at a certain level, with variable costs increasing at a given rate as the output increases. In addition to breakeven points, a CVP analysis helps management determine the effects of a change in the price on the revenues, given a cost structure or a proposed change in the cost structure of the company. The management can also apply a CVP analysis to determine the amount of operating leverage it decides to employ. The operating leverage refers to the amount of fixed costs a company decides to use in its operations, relative to variable inputs.

As a manager, when you are making decisions for the company, you need to consider the distinction between how the decisions will impact the company in the short term and in the long term. You can classify the company’s operations as short term or long term.

Week 2 Discussion

Contains unread posts

Nancy Ellis posted Jun 6, 2023 9:51 AM


Nancy Ellis

South University

MBA 5004

Instructor: Dr. Jin

Week 2 Discussion

June 8, 2023




   When making decisions for a company, managers should determine if a cost is avoidable or unavoidable because, in the short run, only avoidable costs are pertinent for decision-making. An avoidable cost is one that may be eliminated by selecting one alternative over another. Long-term decisions happen when contemplating events 10 years or more in the future causing decision-makers to consider or choose approaching actions different from those they would otherwise go after (Rand). Short-term decisions usually address temporary events or a quick need, while long-term decisions line up with more permanent problem-solving and meeting strategic goals.

   Decision-making from various sources. requires a substantial amount of deliberation and input from various sources. The head decision-makers in the business usually make the decisions and know how and when to act or move forward with the right information. The decision-maker must be able to determine the objective. The decision-maker should have a thorough knowledge of the details of the objective and be able to analyze the information and factor it into the process when deciding how to act. The decision-maker should have a firm grasp of the resources, alternatives, and consequences at his disposal before making a final decision. The manager must be confident that the company can achieve its mission once established. Knowing the leadership qualities of others in the company can give the manager confidence in his decisions (Lewis).

Tests that are used to help a manager in deciding may include,

· The familiarity test is performed by examining the main uncertainties in a situation.

· The feedback test, was the feedback from the last decision dependable?

· The measured-emotions test: Are the emotions we have experienced in similar or related situations measured?

· The independence test: Are we likely to buy any inappropriate personal interests or attachments?

If a situation fails even one of these four tests, we need to strengthen the decision process to reduce the risk of a bad outcome. There are usually three ways of doing this—stronger governance, additional experience, and data, or more dialogue and challenge (Campbell & Whitehead, 2020).

Campbell, A.& Whitehead, J. (2020) How to Test Your Decision-Making Instincts


Lewis, J. (n.d.) What Kind of Information is Important to Business Decision-Making


Rand (n.d.) Seeking Examples of Long-Term Decisions


In this week’s discussion, I focused on Question 2, which addresses the distinction between managerial decisions’ short-term and long-term impacts and the information required to make these decisions effectively. When making decisions as a manager, it is crucial to consider the short-term and long-term consequences of those decisions (Froeb et al., 2023). Understanding the potential effects of decisions in different time horizons allows managers to develop strategies that align with the company’s goals and sustainability. To assess these impacts, managers need specific information and tools.

In the short term, managers must consider immediate operational outcomes, such as meeting production targets, fulfilling customer orders, and maintaining cash flow. Key information required includes real-time data on sales, expenses, inventory levels, and production capacity. These metrics provide insights into the company’s current state and help managers gauge the immediate impact of their decisions (Samuelson et al., 2022). Additionally, market trends, customer feedback, and competitor analysis contribute to a comprehensive understanding of the short-term effects. By closely monitoring market trends, managers can identify shifts in consumer preferences, emerging technologies, and industry dynamics that may impact the company’s performance in the near future. This knowledge enables managers to align their decisions with current market demands and capitalize on emerging opportunities.

On the other hand, long-term decisions require a broader perspective and consideration of strategic goals, market trends, and industry dynamics. Managers must analyze market research, industry reports, and economic forecasts to identify emerging opportunities and potential risks. Long-term decisions may involve expansion into new markets, investment in research and development, or adopting sustainable business practices (Froeb et al., 2023). Assessing these impacts often involves financial modeling, scenario analysis, and strategic planning to anticipate the consequences of decisions over a more extended period. Strategic planning is also vital for evaluating the long-term impacts of decisions. This involves setting clear objectives, formulating strategies, and aligning resources to achieve long-term goals.

To further enhance decision-making, managers can employ various tests and evaluation methods. Cost-benefit analysis helps quantify a decision’s potential gains and losses, providing a framework for evaluating its economic feasibility. Sensitivity analysis allows managers to explore the effects of different variables on decision outcomes, helping identify potential risks and uncertainties (Samuelson et al., 2022). Market testing and pilot programs can provide valuable insights by gauging customer response before full-scale implementation. Additionally, seeking input from key stakeholders, including employees, customers, and industry experts, can provide diverse perspectives and enrich decision-making.

In summary, differentiating between managerial decisions’ short-term and long-term impacts is crucial for effective decision-making. Managers need specific information for each time horizon, such as real-time operational data for the short term and market research and industry analysis for the long term. By utilizing tools such as cost-benefit analysis, sensitivity analysis, and market testing, managers can make informed decisions that align with the company’s objectives and lead to sustainable success. Market testing can be conducted to validate new product concepts or strategies before committing significant resources. It allows managers to gather feedback from target customers, assess market acceptance, and make informed adjustments to optimize long-term success.


Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2023). 
Managerial economics: A problem solving approach (6th ed.). Cengage Learning.

Samuelson, W. F., Marks, S. G., & Zagorsky, J. L. (2022). 
Managerial economics. John Wiley & Sons, Inc.

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