Managerial Economicsadvanced
Distinguish operational issues from environmental issues in managerial economics, giving two examples of each.
Answer
Operational issues arise inside the firm and are generally within management's control, for example product pricing and technology choice. Environmental issues arise from the broader economic, social, or political setting, for example government economic policy and trends in foreign trade.
Explanation
### What a good answer covers
- Operational issues arise within the organization and fall substantially under management's control.
- Examples include product choice, production scale, technology, pricing, sales promotion, investment, and inventory.
- Environmental issues concern the broader conditions in which the organization operates.
- Examples include government policy, financial institutions, foreign trade, labor and capital markets, and political conditions.
### The concept
The distinction is about the source and controllability of a problem. A firm can decide its inventory policy, but it cannot directly determine the country's monetary policy or the overall pattern of foreign trade. Managers analyze both categories because internal choices must respond to external conditions.
### Remember
Classify a problem by asking whether it originates inside the firm and is substantially under management's control.
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