Managerial

Economics

PGDM, FSM
Roopesh Kaushik
Course Outline
S.N. Session Theme Readings Learning Outcome

1& 2 Introduction of Economics: Use of Chapter 1: Understanding the

the subject in general and Thomas & Maurice, Managerial importance of Economics
Economics, McGraw Hill, 11th ed.
management in particular. for Managers and learning
 
Production Possibility Frontier, Chapter 1: key analytical tools of
positive and normative economics, Dominick Salvatore, Principles of Economics.
nominal and real values, Opportunity Microeconomics, 5th Edition
Cost and Economic Profit, Present (International Version), Oxford
value. University Press (OUP), 2014
3&4 Utility Analysis: Cardinal vs ordinal Chapter 2 & 5: Establishes a basis for
Derivation of the demand curve Thomas & Maurice, Managerial consumer demand and
Economic 11th ed.
Theory of Demand: Meaning of explores the determinants
 
demand, Statement of demand Chapter 2, 3 & 5: of demand.
function. Determinants of demand. Dominick Salvatore, Principles of
Law of Demand. Microeconomics, 5th Edition
(International Version), OUP, 2014
5&6 Exceptions of the law and Giffen Chapter 5 &6: Understanding the
Paradox. Elasticity of demand: Thomas & Maurice, Managerial implications of change in
Economics, 11th ed. price and other
Concept, types and determinants.
  determinants of demand.
Analysis of Price elasticity and its Chapter 4 & 5:
determinants. Dominick Salvatore, Principles of
Microeconomics, 5th Edition
(International Version), OUP, 2014
Cont.
7 Measurement of elasticity of Chapter 6: How to measure or
demand: Point elasticity and Thomas & Maurice, anticipate the change in
Managerial Economics, 11th demand with the change in
Arc elasticity methods Income
ed. any of the determinant of
elasticity and Cross elasticity   demand.
Time element in the theory of Chapter 5: Dominick
demand Salvatore, Principles of
Microeconomics, 5th Edition
(International Version), OUP,
2014

8 Estimation of Demand Chapter 4 & 7: How to anticipate future

Thomas & Maurice, demand for managerial
Managerial Economics, 11th readiness?
ed.
 
Chapter 5: Managerial
Economics, 8th edition,
Dominick Salvatore and S. K.
Rastogi, Oxford Higher
Education.
Cont.
9 Production concepts and Chapter 3, 8: How to organize
analysis; Production Thomas & Maurice, Managerial production in the short
Economics, 11th ed. run with managerial
functions: short run and
Chapter 7: Dominick Salvatore, Principles implications.
Laws of production: Law of Microeconomics, 5th Edition
of variable proportion or (International Version), OUP, 2014
law of diminishing
marginal returns.

10 Introduction of Isoquants, Chapter 9: How to organize

types of isoquants, Long Thomas & Maurice, Managerial Economics, production in the long run
with managerial
run and laws of long run 11th ed.
implications.
production. Budget line. Chapter 7: Dominick Salvatore, Principles of
Problems of output Microeconomics, 5th Edition (International
maximization and cost Version), OUP, 2014
minimization.
&
QUIZ 1
11 Economies and Chapter 5: How to organize
diseconomies of scale, Baye, Michael R. and Prince, Jeffrey T. production in the long run
with managerial
Managerial use of Managerial Economics and Business Strategy,
implications.
Production function. 8th Edition, McGraw Hill Education.
Chapter 7: Dominick Salvatore, Principles of
Microeconomics, 5th Edition (International
Version), OUP, 2014
12
Cont. How to minimize short
Cost concepts and analysis: Chapter 5:
Short run and long run Baye, Michael R. and Prince, Jeffrey T. and long run costs?
Empirical standing of the
costs. Managerial Economics and Business
behavior of costs
Empirical evidence of the Strategy, 8th Edition, McGraw Hill
behavior of short run and Education.
long run cost curves. Chapter 8: Dominick Salvatore,
Principles of Microeconomics, 5th Edition
(International Version), OUP, 2014
13 Introduction of markets, Chapter 7: Characteristic features of
Perfect competition. Baye, Michael R. and Prince, Jeffrey T. an ideal market.
Equilibrium of a firm. Break How does the time affect
Managerial Economics and Business
even analysis. Price the pricing decisions?
determination, importance of Strategy, 8th Edition, McGraw Hill How is the price
time element in price theory Education. determined in a perfectly
Chapter 9: Dominick Salvatore, Principles competitive market
of Microeconomics, 5th Edition
(International Version), OUP, 2014
14& Imperfect competitions – Chapter 8: Imperfections in the market
15 Monopoly, monopolistic and Baye, Michael R. and Prince, Jeffrey T. and pricing decisions
oligopoly. Monopoly and Managerial Economics and Business
pricing decision: short run and Strategy, 8th Edition, McGraw Hill
long run. Education.
Chapter 10: Dominick Salvatore, Principles
of Microeconomics, 5th Edition
(International Version), OUP, 2014
Cont.
16& Price discrimination under Chapter 8: Pricing by a single
17 monopoly Discriminating Baye, Michael R. and Prince, seller
Monopolist Equilibrium
Jeffrey T. Managerial Economics
and Dumping
and Business Strategy, 8th Edition,
McGraw Hill Education.
Chapter 10: Dominick Salvatore,
Principles of Microeconomics, 5th
Edition (International Version),
OUP, 2014
18 Oligopoly solutions: Chapter 9: Understanding a few
Cournot’s, Bertrand’s model Baye, Michael R. and Prince, Jeffrey sellers’ market and their
(classical). pricing practices
T. Managerial Economics and
Business Strategy, 8th Edition,
McGraw Hill Education.
Chapter 11: Dominick Salvatore,
Principles of Microeconomics, 5th
Edition (International Version), OUP,
2014
19 Stackelberg model and Chapter 11: Dominick Salvatore, Understanding a few
market sharing Sweezy’s Principles of Microeconomics, 5th sellers’ market and their
Kinked demand curve model Edition (International Version), OUP, pricing practices
2014
20 Review & Quiz 2
Evaluation Component and weight
age
S.No. Components Marks
1 Quiz 20
2 Assignments 10
3 Class Participation 10
4 Mid Term 20
5 End Term 40

Total 100
Economics
• Greek Term

• Whately, Hearn & Igram

• Mercantilist
• Physiocrats
• Classical Economics (Smith, J B Say)

• Neoclassical Economics

• Keynesian Economics

• Monetarist
Managerial Economics
• Manager: A Person who directs
resources to achieve a stated goal.

• Economics: Science of making

decision in the presence of scarce
resources.

• Managerial Economics: The study

of how to direct scarce resources
in the way that most efficiently
achieves a managerial goal
Managerial Economics

• It is a very broad
discipline in that it
describes methods useful
for directing everything
from the resources of a
household to maximize
household welfare to the
resources of a firm to
maximize profits.
Managerial Economics

• Spencer and Siegelman have

defined the subject as “the
integration of economic theory with
business practice for the purpose of
facilitating decision making and
forward planning by management.”
Managerial Economics

• Application of
economic concepts
and economic analysis
to the problems of
formulating rational
managerial decisions
(Mansfield)
Micro, Macro, and Managerial
Economics Relationship
Microeconomics studies the actions of individual
consumers and firms; managerial economics is an
applied specialty of this branch. 

Macroeconomics deals with the performance, structure,

and behavior of an economy as a whole. Managerial
economics applies microeconomic theories and techniques
to management decisions.

It is more limited in scope as compared to

microeconomics. Macroeconomists study aggregate
indicators such as GDP, unemployment rates to
understand the functions of the whole economy.
Cont.
Microeconomics and managerial economics
both encourage the use of quantitative methods to
analyze economic data.

Businesses have finite human and financial

resources; managerial economic principles can
aid management decisions in allocating these
resources efficiently.

Macroeconomics models and their estimates are

used by the government to assist in the
development of economic policy.
Nature and Scope of Managerial
Economics
The most important function in managerial economics is
decision-making. It involves the complete course of selecting the
most suitable action from two or more alternatives.

The primary function is to make the most profitable use of

resources which are limited such as labor, capital, land etc.

 A manager is very careful while taking decisions as the future is

uncertain; he ensures that the best possible plans are made in the
most effective manner to achieve the desired objective which is
profit maximization.

Economic theory and economic analysis are used to solve the

problems of managerial economics.

Economics basically comprises of two main divisions namely

Micro economics and Macro economics.
Microeconomic Theory
Macroeconomic Theory
Cont.
Managerial economics covers both macroeconomics as
well as microeconomics, as both are equally important
for decision making and business analysis.

Macroeconomics deals with the study of entire

economy. It considers all the factors such as government
policies, business cycles, national income, etc.

Microeconomics includes the analysis of small

individual units of economy such as individual firms,
individual industry, or a single individual consumer.
Cont.
• All the economic theories, tools, and concepts
are covered under the scope of managerial
economics to analyze the business environment.

• The scope of managerial economics is a

continual process, as it is a developing science.

• Demand analysis and forecasting, profit

management, and capital management are also
considered under the scope of managerial
economics.
Cont.

• Managerial economics leverages economic concepts and

decision science techniques to solve managerial
problems. It provides optimal solutions to managerial
decision making issues.
Cont.

• Firm

• Agency Problem

• Business Cycle
Five Force Analysis
Ten Principles of Economics
• Trade off

• Guns & Butter

• Efficiency &
Equity
Cont.

• Opportunity
Costs
Cont.

• Rationale people
thinks at margin

• Water-Diamond
Paradox
Cont.

• 200-seat plane
• costs the airline $100,000.
• Average cost of each seat is $100,000/200,
which is $500.
• Imagine that a plane is about to take off with
ten empty seats, and a standby passenger
waiting at the gate will pay $300 for a seat.
• Should the airline sell the ticket?
Cont.

• People
responds to
incentives/pric
es
Cont.

• Market can
organize
economic
activities
To be Continued