Managerial Economics and Demand Estimation

Paper Summary:

This paper analyzes the effectiveness of demand estimation in a managerial context. Managerial decision-making often depends on analysis of the demand for a firm's product. Demand estimation is an attempt to find a reasonable approximation of the actual but unknown demand function for a firm's product. There are several limitations of obtaining the perfect accurate demand estimations. Identification problem exists in estimating demand and supply functions. It analyzes how to empirically estimate the demand relationship using regression analysis as well as potential difficulties associated with regression analysis. It also includes a discussion of marketing research approaches to demand estimation such as consumer surveys, consumer clinics, market experiments and observation research. Each marketing research approach has its own advantages and disadvantages. Accurate demand estimation is crucial for sound managerial decision making. But, it is impossible to obtain perfect accurate demand estimation. Managers should exercise great care when using demand estimations to solve managerial decision problems, subject to the related constraints.

From the Paper:

"From an economic perspective, cost includes not only explicit cost payments, but also implicit costs, arising from the contribution of the firm's time and resources (McGuigan & Moyer 1989). Managers need to take into account various costs involved in obtaining perfect demand estimation. Also, all estimating procedures involve the analysis of historical experience into patterns and the projection of those patterns into the future in the belief that the future will somehow resemble the past, which limits the usefulness of demand estimation. Firms usually lack the prior knowledge of customers' demand. Also, the demand estimation does not capture all the information the management desires. The perfect accuracy of demand estimation is desirable but not rational to managers as it is too costly to obtain perfect accurate demand estimation and the usefulness of demand estimation is limited."

More papers on Managerial Economics and Demand Estimation:

• Term Paper # 119263 : "Managerial Economics"
• Analytical Essay # 141095 : "Game Theory In Managerial Economics"

APA Citation:

MLA Citation: