Managerial Economicsintermediate
Arrange the following steps of applying an economic model to a business decision in the correct chronological sequence.
Answer
Identify the specific business problem to address, Establish simplifying assumptions to construct the model, Solve the model to generate theoretical predictions, Compare model predictions against empirical data to make a decision
Explanation
### The order
1. **Identify the decision and relevant evidence**: Analysis needs a defined choice and information related to it.
2. **Compare the alternatives using the analysis**: The model helps show how the choices may differ.
3. **Check assumptions against actual conditions**: A result is useful only if its assumptions are reasonably applicable.
4. **Use the results to inform a managerial choice**: The model supports the decision but does not replace managerial judgment.
### Remember
Define the choice, analyze it, test the assumptions, then decide.
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