Benefits Of Managerial Economics

Cost benefit analysis is performed to establish how an action, a project is doing using monetary terms. The positive factors in analysis are the benefits while the negatives are the costs incurred. The cost effectiveness analysis is making a separation of the benefits and costs in a project. Though benefits may not be measured in monetary terms, cost which includes social cost and financial cost is measured in money units by use of market prices. In the given example of the hospital upgrading its radiology to digital machine shows that costs are quantified in money units.

In upgrading the machine the hospital has the potential of serving many patients efficiently and thus the benefits are greater than implied costs. Although no monetary units will be attached to the benefits of installing the project the cost effectiveness shows how maximum benefit can be achieved given same level of costs incurred. In social cost benefits analysis, all the benefits and cost are used that include private, social costs and benefits.

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These benefits and costs are given using the standard principles of social economics where the benefits are based on consumer’s willingness to pay for a project. On the other hand costs are what losers in a particular field are willing to receive as compensation for resource used as stated by Brent, (2006). The cost effectiveness reflects the success of implementation of a project determining the level of benefits achieved versus the cost incurred. Normally when benefits cannot be valued costs cost effectiveness is used to compare costs used in providing a beneficial outcome mainly in government planning.

A cost benefit analysis is performed in a project to show how a given level of benefits is achieved at minimum cost. The cost effectiveness seeks to maximize the extent of achieving a beneficial goal using predetermined budget. Cost benefit analysis is thus a tool used for making a decision of whether to make a change or not while cost effective analysis is uses a monetary value to measure effect. REFERENCES Brent J. R. (2006). Applied cost-benefit analysis. Edward Elgar Pu