Answer sheet managerial economics

Using the model to find the solution: It is a simplified representation of the actual situation It need not be complete or exact in all respects It concentrates on the most essential relationships and ignores the less essential ones.

Answer sheet managerial economics

Nature Of Stability Strategy A firm following stability strategy maintains its current business and product portfolios; maintains the existing level of effort; and is satisfied with incremental growth. It focuses on fine-tuning its business operations and improving functional efficiencies through better deployment of resources.

It decides to serve the same markets with the same products; It continues to pursue the same objectives with a strategic thrust on incremental improvement of functional performances; and It concentrates its resources in a narrow product-market sphere for developing a meaningful competitive advantage.

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Adopting a stability strategy does not mean that a firm lacks concern for business growth. It only means that their growth targets are modest and that they wish to maintain a status quo.

Since products, markets and functions remain unchanged, stability strategy is basically a defensive strategy. A stability strategy is ideal in stable business environments where an organization can devote its efforts to improving its efficiency while not being threatened with external change. In some cases, organizations are constrained by regulations or the expectations of key stakeholders and hence they have no option except to follow stability strategy.

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Generally large firms with a sizeable portfolio of businesses do not usually depend on the stability strategy as a main route, though they may use it under certain special circumstances.

They normally use it in combination with the other generic strategies, adopting stability for some businesses while pursuing expansion for the others. However, small firms find this a very useful approach since they can reduce their risk and defend their positions by adopting this strategy.

Niche players also prefer this strategy for the same reasons. Conditions Favouring Stability Strategy Stability strategy does entail changing the way the business is run, however, the range of products offered and the markets served remain unchanged or narrowly focused.

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Hence, the stability strategy is perceived as a non-growth strategy. As a matter of fact, stability strategy does provide room for growth, though to a limited extent, in the existing product-market area to achieve current business objectives.

Implementing stability strategy does not imply stagnation since the basic thrust is on maintaining the current level of performance with incremental growth in ensuing periods. The industry or the economy is in turmoil or the environment is volatile. Uncertain conditions might convince strategists to be conservative until they became more certain.

Environmental turbulence is minimal and the firm does not foresee any major threat to itself and the industry concerned as a whole. The organization just finished a period of rapid growth and needs to consolidate its gains before pursuing more growth.

The industry is in a mature stage with few or no growth prospects and the firm is currently in a comfortable position in the industry Rationale for Using Stability Strategy There are a number of circumstances in which the most appropriate growth stance for a company is stability rather than growth.

Stability strategy is normally followed for a brief period to consolidate the gains of its expansion and needs a breathing spell before embarking on the next round of expansion. India Cements went through a rapid expansion by acquiring other cement companies before stabilizing and consolidating its operations.

Videocon and BPL had first diversified into new businesses and then started consolidating once faced with stiff competition. Managers pursue stability strategy when they feel that the enterprise has been performing well and wish to maintain the same trend in subsequent years.

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They would prefer to adopt the existing product-market posture and avoid departing from it. Sometimes, the management is content with the status quo because the company enjoys a distinct competitive advantage and hence does not perceive an immediate threat.

Stability strategy is also adopted in a number of organizations because the management is not interested in taking risks by venturing into unknown terrain. In fact they do not consider any other option as long as the pursuit of existing business activity produces the desired results.

Conservative managers believe product development, market development or new ways of doing business entail great risk and therefore, avoid taking decisions, which can endanger the company.

A number of managers also pursue consolidation strategy involuntarily. In fact, they do not react to environmental changes and avoid drastic changes in the current strategy unless warranted by extraordinary circumstances. Sometimes environmental forces compel an organization to follow the strategy of status quo.

This is particularly true for bigger organizations, which have acquired dominant market share. Such organizations are usually not permitted by the government to expand because it may lead to monopolistic and restrictive trade practices detrimental to public interest.

The Management has to select the one that best suits the corporate objective.He is a former lecturer of Managerial Economics for MBA at Putra Business School, Malaysia.

Answer sheet managerial economics

Prior to that, he serves 33 years of working experience in various senior positions with the Government of Malaysia before joined the corporate sector. Find out why Stony Brook University has become an internationally recognized research institution that is changing the world.

Explore programs and degrees offered for endless career opportunities. Start your journey in education today! Managerial economics helps in rational decision making.

The various economic concepts help a manger to take right decisions. The scope of managerial economics is: I/5(13). He is a former lecturer of Managerial Economics for MBA at Putra Business School, Malaysia. Prior to that, he serves 33 years of working experience in various senior positions with the Government of Malaysia before joined the corporate sector.

Faculty of Business and Economics Naamsestraat 69 bus B Leuven Tel: +32 16 FEB EXAM D0H52A/D0T96A – Managerial Economics (ANSWERS TO SOME SAMPLE EXAM QUESTIONS) Professor Dr. Otto Toivanen 20/06/ Instructions for students: sheet. o Answers on the quantitative and qualitative questions should be given on the attached.

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