1. Economics & Business
Decision Making
M. Roldsgaard
February 24, 2016

2. Economics & Business Decision
Making
• Economics as the Science of Decision Making
• The Economic Problem – Scarce Resources &
Unlimited Wants & Needs
-Needs are the essenKals of life
such as food, water, shelter, &
clothing.

3. Economics & Business Decision
Making Cont’d.
-Wants are all the things we would like to have which we
believe make our lives more comfortable and/or happy.
-Scarce Resources are insufficient in quanKty relaKve to
their demand.

4. The Effect of Human Decision Making
on Businesses
• Going to supermarket, for example, buying on
“autopilot” so a consumer’s decision affects
businesses in different ways.
• Risk, for example, is leaving a book on the
shelf at a bookstore in the hopes that the
same book would be available in a library,
instead, for free.
• hZps://www.youtube.com/watch?
v=Rn5a03Xp0Kc

5. Value for Money
• A subjecKve situaKon where the saKsfacKon
gained from using a product/service is greater
than the amount of money the individual paid
for it. J > $
• Market is made up of buyers & sellers
agreeing on an exchange.

6. Business Decision Making
• Businesses are interested in how businesses make
decisions themselves.
For example:
-Who to hire
-When to hire
-What to invest in
-What not to invest in
-What decisions maximize efficiency
-When to pursue an acquisiKon
-When to join an adverKsing campaign
-How other stakeholders make decisions

7. Business Decision Making Cont’d.
• Investment is about making money available
to develop a project which will generate
future returns including increasing future
producKve capacity.
-An example could be the bakery buying a new
machine for $20K to increase croissant
producKvity 10% versus invesKng in another
way, as we discussed in Chapter 1.

8. Business Decision Making Cont’d.
• Growth & Expansion – from a start-up
company acquiring partnerships to large
mulKnaKonal business to acquire a new
business by merger or takeover
-Risk is the extent to which a decision leading to
a course of acKon will result in some loss,
damage, adverse effect or otherwise
undesirable outcome to the decision maker.

9. Business Decision Making Cont’d.
-Synergy! 2 + 2 = 5
Refers to a situaKon where the combinaKon of
two or more businesses or business operaKons
bring total benefits which are greater than those
which would arise from the separate business
enKKes.

10. Business Decision Making Cont’d.
• Acquiring & Keeping Customers
-Businesses need customers to survive; this can be
other businesses as customers or final consumers.
-Acquiring is a cost; markeKng, adverKsing,
promoKon, and punng in place appropriate
services/product at right Kme-right place
-RetenKon is a cost; with emphasis on retenKon vs.
acquisiKon – 80/20, 70/30, 60/40…
-When to lose a customer? When the cost of
retaining is higher than any benefits the customer
brings. Rev < Retn

11. Business Decision Making Cont’d.
-The theory of retenKon vs. new customer is 6:1
(United NaKons Conference on Trade and Development (UNCTAD)

12. Conclusion
• Economics = The Science of Decision Making because
all businesses/people are effected in some way by
scarce resources, unlimited wants/needs, must
allocate to different uses & thus make choices.
• Every individual consumer decision is important
because it sends messages to businesses.
• Businesses must understand to improve.
• 3 main areas; investment decisions, growth &
expansion, and acquiring/keeping customers.
• Businesses must accurately evaluate all the costs and
benefits.

13. QUESTIONS/DISCUSSION