Problem Solving and Decision Making – Establishing a price for a new product using the law of supply and demand
Scientific methods are very important and help in problem solving and decision making process. Having good problem solving skills is essential and takes an organization to another level. Scientific methods assist in decision making process and are widely used in many businesses to increase productivity. The success of any business depends on effective decision-making and problem solving techniques. Businesses are faced with several problems and challenges including reduction in supply and demand. It is crucial for organizations to make appropriate decision without compromising the terms and condition of the business. The law of supply and demands plays a significant role in micro-economics and businesses. The law of supply states that quantity of a product supplied increases with decrease in prices (Gale, 2015). The cost of a products falls with an increase in supply or high demand. Contrary, the law of demand argues that the quantity of a product decreases as the prices increases. Businesses are limited by the law of supply and demand making forcing them to establish equilibrium. Market-clearing price helps firms to find a long-lasting equilibrium that balances both supply and demand. Proper problem solving and decision-making process using scientific evidence has a significant impact on businesses when establishing new prices utilizing the law of supply and demand.
Problem solving and decision making using the scientific method
It is fundamental for companies and businesses to have good decision-making skills and problem solving techniques. Businesses are required to make the appropriate decision when faced with complex issues. It is also important to establish a good approach that can solve a problem (Doctor, 2011). For instance, the law of supply and demand affects most businesses. The determination of prices should be done using scientific models. Appropriate problem solving and decision-making techniques need the application of critical thinking (“Systematic problem solving and decision-making”, 2016). Whenever a business is faced with numerous issues such as reduction in sales, it is crucial to make an appropriate decision. The law of supply and demand may cause the decline in sales. Solving a problem requires some pragmatics and logical reasoning. Problem –solving has been defined as a cognitive and behavioral process that individuals and organizations use to identify, discover and invent effective means of coping with the problem faced.
There are four main steps used to identify a problem namely: problem definition, generating alternatives, evaluation, and selection of alternatives and implementation of the solutions. Defining a problem is the first step in problem solving (Gale, 2015). The business should start by identifying the issue causing the sales to reduce. It is important to diagnose the actual situation facing the company by analyzing and defining the causes. Generation of alternatives to solve the problem is the next stage. It is necessary to propose several alternatives that will increase the sales. Brainstorming the alternative helps to evaluate the alternatives (Doctor, 2011). Multiple alternatives enhance the value of the final decision. It is advised to generate the alternatives before making a final decision including evaluation and selection of the best alternative. Selection of best alternative is critical in the decision-making process. The best alternative should have minimal impacts compared to the rest. The last step in problem solving is the implementation of the best alternative.
Stabling the price of a new product depends on many factors including the law of supply and demand. The cost of production and demand should be used to determine the prices. The company should decide on the prices based on the demand curve and production cost. The cost of production should be minimal to ensure high returns (Doctor, 2011). It is essential to establish a suitable price that is affordable to customers. The product should meet the needs of the customers. If the demand is higher than production, the cost of the product should be elevated to sustain the supply chain. The company should make a decision using the best model.
Making appropriate decision on the prices of a new product is done systematically. The first step is identifying the problem facing the company. The process involve gathering of information, evaluating alternatives and implementing the final decision. Identification of a decision is the first step in the process. It is important to clearly define the decision and state it down. Gathering relevant information is vital and should be done before identifying alternatives (“Systematic problem solving and decision-making”, 2016). The information can be gathered through research and development. The company should involve customers by asking them what they think in relation to the new product prices. Both internal and external information is needed to improve the sales. Identification of alternatives is necessary. There is need to have many costs and choose one with minimal impacts. Weighing the evidences is also crucial. The alternatives should be considered using scientific evidence and methods. The profit margin and production cost is determined using scientific evidence. Choosing the best alternative is important and is done after weighing the evidence (Doctor, 2011). Taking action and making the best decision is the last stage. The prices of the new product should be determined by taking into consideration the law of supply and demand. Reviewing the decision and identifying its impacts on the sales is necessary.
Conclusion
The law of supply and demand is important to all businesses. It limits the companies from exploiting customers. The decision on prices of a new product must be made using the scientific method. The company should identify the problem and use best techniques to solve. The demand for the product directly affects the prices. Prices increase with an increase in demand thereby affecting the supply chain. It is vital for the businesses to establish the best prices after reviewing all the alternatives. The decision should have minimal impact on the business with equilibrium consideration between customer satisfaction and profit margin.
References
Doctor, R. (2011). Problem Solving and the Decision-Making Process. Physical Therapy, 51(7), 816-818.
Gale, D. (2015). The law of supply and demand. Mathematica Scandinavica, 3, 155
Systematic problem solving and decision-making. (2016). Long Range Planning, 23(6), 129
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Good post however, I was wanting to know if you could write a little more on strategic decision making? I’d be very grateful if you could elaborate a little bit further as I will use this information in my own MBA project. Thanks.
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