ECONOMIC DECISION MAKING
Question 4 (a)
When Mr. and Mrs. A purchased the first house they viewed, it is factual that they missed three of the six decision steps for a successful decision maker. They had defined the problem and the objective as getting the house that suits their demands. Additionally, they made a choice although they did not consider the issue of alternatives. However, it is exhibited that they did not explore the available alternatives and from this, they failed to predict the consequences of they made a wrong an appropriate decision. Lastly, lack of alternatives resulted to failure to perform sensitivity analysis to assess the effectiveness of the optimal decision.
Question 4 (b)
For the firm B to invest 5 years and 6 million in a new product that they are not sure whether it will compete profitably in the market missed some steps of successful decision making. In making this choice, the firm had defined its problem and determined the objective. However, it is perceptible that the firm did not consider the alternatives, predict the consequences of investing immensely on a new product and perform the sensitivity analysis (Dlabay & Scott, 2010).
Question 4 (c)
Leaving the mattress that blocked one lane on the highway missed three major steps of appropriate decision making. To start with despite defining the problem and determining the objective as leaving the mattress there, this decision lacks consideration of the alternatives, prediction of the consequences in the traffic enlarges, and performing sensitivity analysis. Alternatives such as taking away the mattress from the road dispose it in another place and just keeping it beside the road are applicable in this case.
Question 4 (d)
Banning the use of thalidomide and withdrawing it from the drug market missed a decision making step which is exploring the alternatives. Though it is not clear whether the government proposed for a replacement of the drug but it seems that they did not consider the alternatives such as removing the elements that made thalidomide defective for pregnant women (Stolberg, 1997).
PROBLEM #3
The soft drink firm can employ the six decision steps in order to define its course of action. The following is the procedural steps of how the company should follow;
- Define the Problem
According to Samuelson and Marks (2015), it is worthwhile to write down the problem that requires decision making though it appears to be obvious. Therefore, in this case, the problem that needs to be written down is to market a new carbonated beverage with 25% fruit juice. This will help the organization to adhere to the target of the firm during the decision making process (Mankiw, 2014).
- Determining the Objective
In determining the objective for this decision/problem, the firm might use the benefit-cost analysis to decide on the objective to adhere to (Samuelson & Marks, 2015). Therefore, in this case, the firm might use profit maximization as the objective since it is the major goal that every organization adheres to while marketing their products.
- Exploring Alternatives
It is factual that the more complex the defined problem, the more significant this step becomes. Therefore, in this case since the problem is not complex, the alternative that can be explored is not to market new carbonated beverage juice.
- Predict Consequences
One the alternative has been defined and written down, the firm can assess the probable consequences of the alternative. On the other hand, the consequences of the problem are determined and later weighed and compared to those of the alternative. Thus, in this case, the consequences of marketing and not marketing the new carbonated beverage juice will be predicted and weighed.
- Make a Choice
After predicting the consequences of both the problem and the alternative, the firm will figure out which among the two accomplishes the objective. Here, the firm can use different techniques such as benefit-cost analysis and mathematical models among others.
- Performing Sensitivity Analysis
After making a choice, the firm needs to assess the appropriateness of the optimal decision. In this case, the firm will have to analysis the stableness of the choice particularly during the inevitable economic and market changes. These changes can be economic recession, change in consumer demand, or even stiff competition (Antonioni & Flynn, 2013).
References
Antonioni, P., & Flynn, S. M. (2013). Economics for dummies. Hoboken, N.J: John Wiley & Sons.
Dlabay, L. R., & Scott, J. C. (2010). International business. Mason, Ohio: South-Western.
Mankiw, N. G. (2014). Principles of economics. Stamford, CT: Cengage Learning.
Samuelson W.F. & Marks S.G. (2015). Managerial Economics. Hoboken, NJ: Wiley & Sons Inc.
Stolberg, S., G. (1997). Thalidomide, long banned, wins support. New York Times. Retrieved from http://www.nytimes.com/1997/09/06/us/thalidomide-long-banned-wins-support.html
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