Managerial Economics & Quantitative Analysis

Introduction

The case represents a business, Earth’s General Store owned by Michael Kalmanovitch. The business aims at creating a balance between people, planet, and profit in Organic-Food Retailing. Kalmanovitch is faced with a financial crisis that requires him to make a decision on whether to consolidate his two locations into on or relocate to a new location. A consultant recommends on the two alternative; one on having a single store at the Whyte Avenue location and moving to a new location from 104 Avenue to a better and accommodative environment. The estimate costs with the proposed move accounted to $60000. This paper will consider the decision making process that Kalmanovitch will use to make a choice on the most appropriate alternative on the given situation. 

The decision Making Process

This is a core function in managerial economics and one that Kalmanovitch will have to make. The decision to be made will have long-term effects on the firm and its effects on the continued success to the firm (Gupta, 2006). It is therefore important to make the right decision. The steps involved include

  1. Establishing the objectives

In this step, management needs to establish the objective of the business enterprise. Kalmanovitch established the Earth’s General Store with an objective of balancing people, planet, and the profit in the Organic-Food Retailing. The business aimed at providing information and products that would assist them in bringing down their social and ecological impact on the planet. The goal was to do as little harm as possible and improve on the conditions of the world for posterity. 

  1. Specifying the decision problem 

The performance of the two stores was not producing the intended results. The store on the 104 Street was struggling on posting some profit unlike the store on the Whyte Avenue. The financial strain that faced the businesses created a risk of losing the business. However, Kalmanovitch wanted to save his business and continue his legacy of organic food retail. 

  1. Identify the alternatives

To overcome the financial strain, the consultant hired to carry out an analysis proposes two possible alternatives; either consolidate the operations in the Whyte Avenue site or relocate from the 104 Avenue to a more accommodative environment that would allow the flourishing of the business. 

  1. Evaluate the alternative

The management needs to collect and carry out analysis of the relevant data.  The data obtained is used to evaluate the outcome or results that can result from each possible course of action. The various methods used for analysis include regression analysis, calculus, linear programing, and cost-benefit analysis. The choice with the optimum solution is chosen. The optimum solution is operated within certain constraints.  One of the constraint in this case is the cost of moving is estimated to be $60,000.

  1. Select the best alternative 

The best choice for among the alternatives as per the method of analysis is chosen with consideration to financial constraints. 

  1. Implement the decision 

The chosen action is put into action. Financial and human resources are mobilized to ensure the full implementation of the proposed solution. It is important that the employees understand the required course of action and the intended purpose. 

  1. Monitor the performance 

The results being achieved from the chosen decision are measured to assess the level at which the desired goals are being achieved. In this case the desired goals will be increased profit making for the organic food retail stores. 

Influence required to Move on the Recommendation

The amount set to facilitate the move process is $60,000. This will influence the recommendation given in terms of the neighborhood considered due to cost of renting, transportation requirement, license and regulatory requirement. I would also have to consider the need of having to do renovations to the new area identified. 

Elements that Kalmanovitch Consider for the Decision

One of the factor that should be considered is the possible of the effect of each effect in making the profits required to sustain the business in the long-term. This will affect how successful the business organization will be in overcoming the financial strain and continue providing a trusted supplier of organic food materials.

Another factor that need to be clear is on the effects of the new rents rates income statement of business. 

Other Factors

The firm’s constraints is one of the factors that may affect the decision made on the situation under study. These constraints may either be internal or external. The Internal constraints includes the ones imposed by the organization itself. In the case, the decision to produce organic-food may affect whether a business relocates due the distribution of its target customers (Gupta, 2006). 

Legal constraints may affect the decision facing the business. This may be in form of laws that define the zoning of the town, health and safety standards and other relevant standards. Presence of such standards creates restriction on how flexible the management can be in considering different alternatives. 

The manager has to take decision with regard to the environmental constrains that determines the economic, social, and political environment that will be adhered to. The operation of businesses in the open economies requires to have up-to-date information on issues of taxation, subsidies, best industrial policies, technology and other factor affecting the general countries’ economies (Gupta, 2006). 

Part 2

Decision making Tree

Analysis of the alternatives

Whyte Avenue

= (-28*0.05) + (22*0.15) + (31+0.3) + (45*0.25) + (52*0.25)

= -1.4 + 3.3 + 9.3 + 11.25 + 13

=35.45

New Location 

= (-45*0.1) + (33*0.1) + (42*0.2) + (55*0.3) + (62*0.3)

= -4.5 + 3.3 + 8.4 + 16.5 + 18.6

= 42.3

Using the MaxiMax principle, moving to a new favorable environment will be more favorable. This decision-making principle is an optimistic one that considers that good things will happen to the business. This happens to consider the best that could occur under each value and go by what has the best value. The assumption is that they will be in position to revitalize the business to yielding the best profits. 

Justification 

Moving to a new location might the best decision for this case. It is important that in food retailers, the place in the marketing mix affects the business to a large extent. An appropriate location should have enough to cater for all the operational needs and relevant equipment. It is very important that the location consider the customer’s convenience in accessing the business location. The exact nature of the business deals with organic foods. This implies that the location should be in an accessible place by the customers. The location should thus consider customer traffic and flow to the business which will affect sales. 

References

Gupta, S. (2006). Managerial Economics. New Delhi: Tata McGraw-Hill Publishing Company Limited.

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