Answer to Question #146870 in Economics of Enterprise for sameer

Question

Explain the fundamental factors considered when making decisions to achieve various goals of a firm?

Answer 1

In making decisions to achieve various goals the firm considers factors such as:

1. Marginal cost - the firm considers additional costs such as additional capital requirements, additional labour, administrative costs, and more.

2. Marginal benefit - the firm considers additional benefits such as profit increments, increase in return on investment, growth, marks share, competitive advantage, and other benefits.

Marginal costs and marginal benefits are used to calculate the net marginal benefit, which is useful in comparing alternatives.

3. Opportunity cost - there is need to consider the value of foregone alternatives when one decision is chosen.

4. Competitor behaviour - behaviour of competitors controls decision making.

5. Resources and capabilities of the firm - firms need to make decisions that are feasible within the confines of their resources and competencies (strategic capabilities)

6. External environmental factors - factors in the external environment such as government regulations, macroeconomic stability, and others are important