Economics
There are several forces, which will tend to create a convergence between the interests of stockholders and managers, and thus cause managers to be interested in maximizing a corporation’s profits or value, what are they? Is measuring profit or value the best approach to take?
The factors that contribute towards the convergence of the interest between stockholders and managers leading to the maximization of the profits or value of the organization include (Gunay, 2008)
- The aspect of competitive pressure thus leading to the decline of the price of the stock in the context of a non-performing company leading to the overall result of takeovers or other relevant actions such as proxy contests
- The concept of tying the remuneration of the management to the performance is also another factor. This forces managers to award stock options frequently with the aim of gaining value in relation to the rise in the price of the shares.
- The owning of the corporate shares belong to the widely dispersed stockholders, institutional holders, insurance companies, and pension funds. The concept relates to the employment of analysts by these institutions to evaluate the performance of the stock. The essence of non-performing entities will result in the sales from the relevant portfolios of the institution thus the decrease in the cost of the stocks. The eventual result is the takeover or proxy contests of the relevant organizations hence dismissal of the top leadership in extreme cases.
Measuring of profit or value is the best approach to take by the management because of the ability of this tool to integrate objectives that are not partial in the implementation towards maximization of the welfare of the stockholder.
In a one page summary, report on the following search: Research and report on a journal or other periodical with relevancy and application to managerial economics. Write a paragraph describing 3 journals Pick one and tell why you chose it
In the search for the managerial economics literature, I came across three crucial articles in relation to the topic: the nature and the scope of managerial economics, managerial economics, and managerial economics concept. From this research, it is critical to note that managerial decisions are essential in the achievement of the goals and objectives of an organization. The achievement of the goals and the pursuit of competitive advantage depends on the effective and efficient decisions by the managers of relevant business entities. In the process of executing these roles, managers face critical challenges because of the complexities of the modern business entities.
Most of the business decisions by the managers depend majorly on the evaluation of the economics surrounding its adoption and implementation within the context of the business entity. The complexity in the evaluation of the environment of the decisions makes it vital for the adoption and application of managerial economics. From this illustration, managerial economics refers to the concept of business principle contributing towards development of quality foundation for the understanding of the economics. This is vital towards the enhancement of the ability of the managers to make essential decisions in relation to the complexity and demanding business environment.
From the three research articles, I chose managerial economics concept. This is because of the extensive illustration of the concept of managerial economics. It also offers characteristics and general scope of managerial economics thus crucial to the understanding of this essential concept in management. This article also demonstrates application of managerial economics in various decision-making processes. It also contributes towards understanding the application of managerial economics in the contexts of optimizations and marginal evaluation or analysis.
The recent earthquake and subsequent tsunami in Japan had a significant negative impact on Toyota, reducing their ability to produce parts to be delivered to their manufacturing and assembly plants around the world. Using the laws of supply and demand as a construct, research and discuss the impacts on Toyota and the auto industry in general from such an event. How does a business remain competitive when prices must remain high due to a reduction in supply?
Demand refers to the ability and willingness of consumers to purchase products or services for the satisfaction of the needs or requirements. Supply refers to the ability and willingness of the producers to provide good and services to consumers at the relative market prices. Demand and supply determine the pricing mechanism within the market thus the success and achievement of goals by an organization. In the case of Toyota Company, the organization felt significant impact of the earthquake and tsunami in Japan. This is because Toyota Company depends on the factors of production from the Northeastern part of Japan (Cunningham & Harney (2012). The essence of natural disaster led to the destruction of numerous factories in Japan. In particular, to this occurrence, about 11 crucial suppliers to Toyota Company experienced the impact of the natural disaster that led to their instant closure from the business.
The cut of supply led to the reduction in the volume of production and manufacturing at the Toyota Company. The reduction in supply of factors of production leads to the rapid decrease in revenues and profit levels following quarterly evaluation of the financial resources. The reduction in the volume of production and manufacturing by Toyota following the natural disaster leads to the shortage in the market. The shortage in supply will result in the eventual increase, in demand for the products that are limited in relation to availability in the market. In order to react to the shortage of the products within the market, the organization is forced to raise the cost of procurement thus the opportunity to reduce the impact of losses because of shortage in supply. The shortage in supply and increase, in demand operate towards upward transformation of the pricing system (Cunningham & Harney (2012).
Despite this increase in the cost of the products in the market, the organization still has the ability to incur massive losses because of the reduced volume of operation or manufacturing thus minimal supplies to the market. The increase in prices will force consumers to shift to the substitutes of the products. In this case, competitors such as General Motors have the opportunity to attract new consumers as a reaction to the increase in demand and prices of the Toyota Products. Companies like Toyota have the capacity to remain competitive despite the shortage in supply. This is through the application of managerial economies in the reduction, in the volume of manufacturing thus supplying minimal quantity to the market. This will push the price upwards thus the opportunity to increase the level of revenues. It is also vital to reduce the factors of production such as labor application to remain competitive (Cunningham & Harney (2012).
References
Cunningham, J., & Harney, B. (2012). Strategy & strategists. Oxford: Oxford University Press.
Gunay, S. G. (2008). Corporate governance theory: A comparative anaylsis of stockholder & stakeholder governance. S.l.: Iuniverse.
Managerial Economics (2012). Retrieved from
http://www.sgbau.ac.in/managerial-economics.pdf
Managerial Economics (2012). Retrieved from
http://www.viauc.com/horsens/Documents/summerschool/courses/Managerial- Economics.pdf
the nature and scope of managerial economics (2012). Retrieved from
http://www.swlearning.com/economics/hirschey/managerial_econ/chap01.pdf
