Managerial Economics BUS505 Week 1: Opportunity Cost Analysis

This assignment solution addresses key concepts in managerial economics, focusing on opportunity cost, revenue maximization, and leadership decision-making. The student answers questions about the opportunity cost of attending college, analyzing the impact of pricing strategies on a firm's revenue, and applying economic principles to a leadership role within a coffee company. The solution incorporates research and examples to support the analysis, including references to academic sources. The student demonstrates an understanding of opportunity cost as a crucial factor in decision-making, market analysis, and the strategic management of a business. The analysis includes discussions on the law of demand, price elasticity, and how to maintain prices in a competitive market. The document also covers the application of business research and strategic planning to address market challenges and enhance revenue.

Running Head: Economics
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Managerial economics
3/6/2020

Economics
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Contents
Question 1...................................................................................................................................................2
References...................................................................................................................................................3
Question 2...................................................................................................................................................4
References...................................................................................................................................................5
Question 3...................................................................................................................................................6
References...................................................................................................................................................7

Economics
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Question 1
The benefits which are not taken by choosing an alternative, so the cost incurred of not
enjoying the benefits of another alternative is the opportunity cost (Mance, et al, 2015).
Opportunity cost can also be defined as one alternative is choosing by losing another alternative
profit. The cost of tuition is the opportunity cost of attending the colleges.
There are many other opportunity costs that the person misses as he chooses to attend the
college such as the cost related to the experience, income, and pleasure. If the person is not
attending the college then he might be working somewhere else and earning money so it is the
opportunity cost that he has given up. The opportunity cost for the person who is attending
college is the sum of college expenses plus the money he can earn somewhere else while
working (Pulido-Velazquez, et al., 2013).

Economics
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References
Mance, D., Vretenar, N., & Katunar, J. (2015). Opportunity cost classification of goods and
markets. International Public Administration Review.
Pulido-Velazquez, M., Alvarez-Mendiola, E. D. U. A., & Andreu, J. (2013). Design of efficient
water pricing policies integrating basinwide resource opportunity costs. Journal of Water
Resources Planning and Management, 139(5), 583-592.

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Question 2
The revenues of the firms can be increased by selling the maximum products at a high
price. If the prices will increase the rapid rate then the demand for the product will decrease. So
the manager should not increase the price of the commodity as it will lower the demand and the
revenues of the firm will not be increased (Chowdhury, et al., 2016).
The elementary viewpoint behind this action was the law of demand which states that
demanded quantity will be higher when the prices of the commodities are lower and vice versa.
So to increase the revenues of the firms the manager should not increase the value of the product
instead he should reduce the prices so that more consumers are attracted and demand more and
this will lead to an increase in the revenues of the firm. When the demand is inelastic, the total
revenues of the firm can increase by increasing the prices but if the demand is elastic then the
manager should not increase the prices (Petrone, et al., 2015).

Economics
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References
Chowdhury, M., Liu, Z., Ghodsi, A., & Stoica, I. (2016). {HUG}: Multi-Resource Fairness for
Correlated and Elastic Demands. In 13th {USENIX} Symposium on Networked Systems
Design and Implementation ({NSDI} 16) (pp. 407-424).
Petrone, C., Magliulo, G., & Manfredi, G. (2015). Seismic demand on light acceleration‐
sensitive nonstructural components in European reinforced concrete
buildings. Earthquake engineering & Structural dynamics, 44(8), 1203-1217.

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Question 3
Being the leader of the organization there were several things which I have to take care
such as properly managing the things and to take several decisions in the company. Our company
deals with the products of coffee so being the leader I have to care about the prices and also do
the research of the market (Shek, et al., 2015). There were several problems I have to go through
such as to maintain the prices, to grab the customers from the market in the increasing
competition and to even analyze the market fluctuation.
With the help of the business research and by using the textbook which I have read in the
class, different strategic are applied which help in leading to an unproductive situation. I have
analyzed the reason behind the market failure and also studied the price elasticity demand which
helps in maintaining the price of the coffee to increase the revenues of the company. Being the
leader I have to lose something to attain something so the opportunity cost concept also helps in
choosing the forgone alternative of the choice (Ali, et al., 2013).

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References
Ali, A. Y. S., Sidow, M. A., & Guleid, H. S. (2013). Leadership styles and job satisfaction:
empirical evidence from Mogadishu universities. European Journal of Management
Sciences and Economics Vol, 1(1).
Shek, D. T., Chung, P. P., & Leung, H. (2015). How unique is the service leadership model? A
comparison with contemporary leadership approaches. International Journal on
Disability and Human Development, 14(3), 217-231.