Economics of business strategy guides strategical thinking along with decision making for the purpose of optimising end results of business. In business strategy, economics handles analysis of multiple type of costs which a company incurs. All business concerns have desires for maximising profits as well as minimising costs through embracing various economies of scale.
- Define the concept of economics of business strategy.
- What is the key role played by economics of business strategy in global scenario.
- List out key principles of economics of business strategy.
Economics is branch of knowledge which is related to production, consumption along with transferring of wealth. Its main focus is towards behaviour as well as interlinkage of economic agents to that of ways business strategies works with strategy of entity. Likewise, business strategy is combination of decisions and actions which a business plans to take for being competitive within an industry and reaching great heights or identified objectives. The concept of economics of business strategy is termed to field of applied economics which examines financial, market related, organisational concerned along with environmental issues that corporations are facing in the presently. It involves various dimensions including product factor, scarcity of resources, demand & supply, distribution and consumption. In broader sense, the concept engrosses study of components of particular strategy such as improving supply and demand of offerings of business or reducing negative impacts of scarcity of resources in entity. It focuses on factors of strategical operations and the way they are associated to economy as whole. Furthermore, the concept assesses factors which impacts business strategy related to management, expansion and hence forth with suitable economic framework as well as quantitative methods. It also covers study of external elements with their impacts on strategies including sudden shift of prices of organisational materials or changes in regulations.
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Economics of business strategy is rapidly developing aspect which includes application of economic methods on strategies devised by business managers for encouraging clients with unique insights along with addressing particular problems so that long term performances of entity within economy are enhanced. In global scenario, economics of business strategy lays great roles as it assist managers to make identified decisions by determining strategies for operations, investments, production, risk and pricing. Other than this, it also plays key role of increasing efficiency of framing decisions for enhancing profits. It assist businesses for identifying and formulating pricing strategies as well as accurate pricing levels of products and services. Another role that economics of business strategy is to study and forecast demand so that factors which influence product demand are identified and proper guidelines are devised to manipulate demand in the market. It provides significant basis in planning of strategies of company and occupies strategical position in the real world of business. Economics of organisational strategy is responsible to manage inventory that is kept by the company. When inventory level are low then production are widely hampered and when inventory level are high then it blocks great amount of funds. For devising effective business strategy, economics performs positive and constructivism role in which all pertaining economic situations are analysed positively and according to this, strategies for business are constructed to manage uncertainties pertaining in economy as whole.
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Principles are fundamental truth as well as propositions which serves as foundation to system of behaviour or beliefs. In context to economics for business strategy, there are certain principle which guides organisational principles to devise suitable strategies as per ongoing economic situations. One of principle of economics of business strategy is opportunity cost analysis that is sacrifice of options of actions of company required by particular decisions. The principle says that an organisation could hire a production factor in a case that factor earns reward within a working or more than its cost of opportunity. In business strategy, opportunity cost is minimum value which is essential for retaining factor services within implementation of specific strategy of business. Time perspective is another principle that says a manager must provide due focus on short and long term influences or impacts of business strategy decisions by giving apt importance to various time durations prior reaching any decision for strategy. In this, long period as well as short period are part of strategies of company that effects decisions on cost and revenues as whole. At same time, Equi Marginal principle is widest popular principle of economics of strategy of business which says that an input or resources in a strategy are allocated in the manner so that added values by last resource is similar to all cases. In a business, optimum allocation are not attained when values of marginal units is more than one practice of strategy than another. By using the principle, business experiences profitable in shifting resources from low marginal activity towards greater activities of marginal values that enhances totality of all strategies for products taken together.
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Economics of business strategies s all about aspects of traditional and modern economics that is related to decision making or action planning of business in real life. With this, business managers establishes relationship among various factors including income, losses, profits along with market structure that assist in guiding for effective decision making as well as running company. In dynamic business environment, managers of company finds it critical to devise decisions about capital investment. In this, sound economic policies such as capital investment decisions and asset divestment strategies, econometric analysis of promoting revenues and economic impact studies guides business strategists to frame key strategies to manage workings in competitive market economy at global level.