Managerial Economics and Strategy, 2/e

1.1 Managerial Decision Making

A firm’s managers allocate the limited resources available to them to achieve the firm’s objectives. The objectives vary for different managers within a firm. A production manager’s objective is normally to achieve a production target at the lowest possible cost. A marketing manager must allocate an advertising budget to promote the product most effectively. Human resource managers design compensation systems to encourage employees to work hard. The firm’s top manager must coordinate and direct all these activities.

Each of these tasks is constrained by resource scarcity. At any moment in time, a production manager has to use the existing factory and a marketing manager has a limited marketing budget. Such resource ...