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Basic 10 Rules Considered in Management Economics

Management Economics can be a rather difficult topic of evaluation. There are different economic principles those are associated with reasoning. A thorough defined thinking and the promotion of the same is highly crucial. In the following article, we will have a look at the different principles of management economics and the 10 rules of management economics that is important.

Marginal and Incremental Principle: According to this principle, the decision is considered rational especially when it is aligned with the objective of the firm. The decision thus undertaken should hasten profit.

Equi-marginal principle: This particular principle suggests that a consumer will be capable of reaching the stage of equilibrium only when the marginal utility is aligned with the different kinds of commodities.

Opportunity Cost Principle: As per this particular principle, the firm can conduct the process of hiring of the factors of production. It is applicable only when the factor earns a reward within the particular occupation that is equal to or greater than the opportunity cost.

Time Perspective Principle: As per the principle, the manager or the person responsible for decision making is supposed to focus upon both the short and long term impact of the decisions. Furthermore, the focus should also be imposed on the different time periods within which the decisions are undertaken.

Discounting Principle: The principle states that when the decision affects the cost along with the revenues in the longer period of time, the costs along with the revenues will be discounted to represent the present values.

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10 Rules of Management Economics

Financial decision making can be deemed to be a rather daunting topic. Most of the accounting department is tasked with the process of management economics.

  1. Time is Money: For every hour of work, the labours or workers are paid money. Furthermore, we also pay for the maintenance of machines on a timely basis. Thus, as per the first rule of management economics, the focus is primarily imposed upon efficiency, maximisation of the output and minimisation of the downtime.
  2. Demand of Work met by Supplying People: The organisations should hire a workforce based upon the demand of work. In case there is a demand for work, hiring should be aligned with it. In case of fall in demand the organisation should cut the population of worker in order to minimise financial losses.
  3. Forecasting Accuracy should be equal to Credibility: Economic projections and forecasts those are realistic and accurate are utilised by organisations for business planning and underpinning profit. Thus, when organisations are capable of forecasting effectively they are furthermore able to ascertain better credibility.
  4. Value is Subjective: Different customers’ perception of value is different. For some speed of delivery is valuable while for others getting mediocre quality product at an affordable rate is valuable. Thus, comprehending the requirement of customers and formulating the financial and business decisions according to it is imperative.
  5. Unspent Budget=Loss Budget: It is true that unplanned spending is highly unwelcome for the business. In the longer run, it can affect the business negatively. On the other hand, spending less on acquiring a certain commodity, just in order to save budget is also not a lucrative decision. The companies are thus supposed to be a little opportunistic when spending money, in order to attain financial success and greater revenue in the longer run.
  6. Income is generated within a Market: In the highly capitalist market, a thorough knowledge of the same is crucial. The production of goods or services should be aligned with the demand for the particular product. In case of a lack in demand, the companies should come up with alternative solutions.
  7. Good Purchased by Market=Goods Sold by Seller: It can be assumed in an ideal situation that the total amount of goods those are manufactured within the market is equal to the total amount of goods those are sold to the buyers.
  8. Growth is Directly Proportional to Health: It can be presumed that the primary component through which the healthy economy can be measured is the capability to grow. The different components through which the growth of an organisation can be measured includes increase in sale revenue, operational efficiency and the general satisfaction of customers.
  9. Internal and External: The internal as well as external policies have major function in determining the success of an organisation.
  10. People: The human resource is considered an asset for the organisation’s success.

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