Managerial Economics

 Page 1


1
MBA - I Semester                                                          Paper Code: MBAC 1002 
    
Managerial Economics    
 
Objectives 
 ? To introduce the economic concepts 
 ? To familiarize with the students the importance of economic 
approaches in managerial decision making To understand the 
applications of economic theories in business decisions  
Unit – I 
 General Foundations of Managerial Economics - Economic Approach 
- Circular Flow of Activity - Nature of the Firm - Objectives of Firms - 
Demand Analysis and Estimation - Individual, Market and Firm demand - 
Determinants of demand - Elasticity measures and Business Decision Making 
- Demand Forecasting.  
Unit-II  
 Law of Variable Proportions - Theory of the Firm - Production 
Functions in the Short and Long Run - Cost Functions – Determinants of 
Costs – Cost Forecasting - Short Run and Long Run Costs –Type of Costs - 
Analysis of Risk and Uncertainty. 
Unit-III  
 Product Markets -Determination Under Different Markets - Market 
Structure – Perfect Competition – Monopoly – Monopolistic Competition – 
Duopoly - Oligopoly - Pricing and Employment of Inputs Under Different 
Market Structures – Price Discrimination - Degrees of Price Discrimination. 
Unit-IV 
 Introduction to National Income – National Income Concepts - Models 
of National Income Determination - Economic Indicators - Technology and 
Employment - Issues and Challenges – Business Cycles – Phases – Management 
of Cyclical Fluctuations - Fiscal and Monetary Policies.
Unit – V
 Macro Economic Environment - Economic Transition in India - A 
quick Review - Liberalization, Privatization and Globalization - Business 
and Government - Public-Private Participation (PPP) - Industrial Finance - 
Foreign Direct Investment(FDIs).  
Page 2


1
MBA - I Semester                                                          Paper Code: MBAC 1002 
    
Managerial Economics    
 
Objectives 
 ? To introduce the economic concepts 
 ? To familiarize with the students the importance of economic 
approaches in managerial decision making To understand the 
applications of economic theories in business decisions  
Unit – I 
 General Foundations of Managerial Economics - Economic Approach 
- Circular Flow of Activity - Nature of the Firm - Objectives of Firms - 
Demand Analysis and Estimation - Individual, Market and Firm demand - 
Determinants of demand - Elasticity measures and Business Decision Making 
- Demand Forecasting.  
Unit-II  
 Law of Variable Proportions - Theory of the Firm - Production 
Functions in the Short and Long Run - Cost Functions – Determinants of 
Costs – Cost Forecasting - Short Run and Long Run Costs –Type of Costs - 
Analysis of Risk and Uncertainty. 
Unit-III  
 Product Markets -Determination Under Different Markets - Market 
Structure – Perfect Competition – Monopoly – Monopolistic Competition – 
Duopoly - Oligopoly - Pricing and Employment of Inputs Under Different 
Market Structures – Price Discrimination - Degrees of Price Discrimination. 
Unit-IV 
 Introduction to National Income – National Income Concepts - Models 
of National Income Determination - Economic Indicators - Technology and 
Employment - Issues and Challenges – Business Cycles – Phases – Management 
of Cyclical Fluctuations - Fiscal and Monetary Policies.
Unit – V
 Macro Economic Environment - Economic Transition in India - A 
quick Review - Liberalization, Privatization and Globalization - Business 
and Government - Public-Private Participation (PPP) - Industrial Finance - 
Foreign Direct Investment(FDIs).  
2
References 
1. Yogesh Maheswari,   Managerial Economics, Phi Learning, 
Newdelhi, 2005 Gupta G.S., 
2. Managerial Economics, Tata Mcgraw-Hill, New Delhi Moyer 
&Harris, 
3. Anagerial Economics, Cengage Learning, Newdelhi, 2005 Geetika, 
Ghosh & Choudhury, , 
4. Managerial Economics, Tata Mcgrawhill, Newdelhi, 2011
*****
Page 3


1
MBA - I Semester                                                          Paper Code: MBAC 1002 
    
Managerial Economics    
 
Objectives 
 ? To introduce the economic concepts 
 ? To familiarize with the students the importance of economic 
approaches in managerial decision making To understand the 
applications of economic theories in business decisions  
Unit – I 
 General Foundations of Managerial Economics - Economic Approach 
- Circular Flow of Activity - Nature of the Firm - Objectives of Firms - 
Demand Analysis and Estimation - Individual, Market and Firm demand - 
Determinants of demand - Elasticity measures and Business Decision Making 
- Demand Forecasting.  
Unit-II  
 Law of Variable Proportions - Theory of the Firm - Production 
Functions in the Short and Long Run - Cost Functions – Determinants of 
Costs – Cost Forecasting - Short Run and Long Run Costs –Type of Costs - 
Analysis of Risk and Uncertainty. 
Unit-III  
 Product Markets -Determination Under Different Markets - Market 
Structure – Perfect Competition – Monopoly – Monopolistic Competition – 
Duopoly - Oligopoly - Pricing and Employment of Inputs Under Different 
Market Structures – Price Discrimination - Degrees of Price Discrimination. 
Unit-IV 
 Introduction to National Income – National Income Concepts - Models 
of National Income Determination - Economic Indicators - Technology and 
Employment - Issues and Challenges – Business Cycles – Phases – Management 
of Cyclical Fluctuations - Fiscal and Monetary Policies.
Unit – V
 Macro Economic Environment - Economic Transition in India - A 
quick Review - Liberalization, Privatization and Globalization - Business 
and Government - Public-Private Participation (PPP) - Industrial Finance - 
Foreign Direct Investment(FDIs).  
2
References 
1. Yogesh Maheswari,   Managerial Economics, Phi Learning, 
Newdelhi, 2005 Gupta G.S., 
2. Managerial Economics, Tata Mcgraw-Hill, New Delhi Moyer 
&Harris, 
3. Anagerial Economics, Cengage Learning, Newdelhi, 2005 Geetika, 
Ghosh & Choudhury, , 
4. Managerial Economics, Tata Mcgrawhill, Newdelhi, 2011
*****
3
UNIT – I
Lesson I  The Fundamentals Of Managerial Economics
Reading Objective:
 At the end of the reading this chapter, the reader will be able to 
understand that economics is the study of mankind’s attempt to satisfy 
their unlimited wants with the help of limited resources.  Economics maybe 
divided in to 1) Micro Economics and 2) Macro Economics 3) Monitory 
Economics and 4) Fiscal Economics.  Micro economics deals with the basic 
principles of economics like law of demand, law of supply, consumption, 
production etc,.  Managerial economics deals with the principles of micro 
economics as applied to managerial decision making.  The reader may also 
be able understand the circle flow of economic activity. The circle flow is a 
chain in which production creates income, income leads to spending and 
spending in turn leads to production activity.
Lesson Outline:
 ? Why study Economics?
 ? Managerial Economics
 ? Nature of Managerial Economics
 ? Circular flow of economic activity
 ? Objectives of the firm
 ? Review questions
Page 4


1
MBA - I Semester                                                          Paper Code: MBAC 1002 
    
Managerial Economics    
 
Objectives 
 ? To introduce the economic concepts 
 ? To familiarize with the students the importance of economic 
approaches in managerial decision making To understand the 
applications of economic theories in business decisions  
Unit – I 
 General Foundations of Managerial Economics - Economic Approach 
- Circular Flow of Activity - Nature of the Firm - Objectives of Firms - 
Demand Analysis and Estimation - Individual, Market and Firm demand - 
Determinants of demand - Elasticity measures and Business Decision Making 
- Demand Forecasting.  
Unit-II  
 Law of Variable Proportions - Theory of the Firm - Production 
Functions in the Short and Long Run - Cost Functions – Determinants of 
Costs – Cost Forecasting - Short Run and Long Run Costs –Type of Costs - 
Analysis of Risk and Uncertainty. 
Unit-III  
 Product Markets -Determination Under Different Markets - Market 
Structure – Perfect Competition – Monopoly – Monopolistic Competition – 
Duopoly - Oligopoly - Pricing and Employment of Inputs Under Different 
Market Structures – Price Discrimination - Degrees of Price Discrimination. 
Unit-IV 
 Introduction to National Income – National Income Concepts - Models 
of National Income Determination - Economic Indicators - Technology and 
Employment - Issues and Challenges – Business Cycles – Phases – Management 
of Cyclical Fluctuations - Fiscal and Monetary Policies.
Unit – V
 Macro Economic Environment - Economic Transition in India - A 
quick Review - Liberalization, Privatization and Globalization - Business 
and Government - Public-Private Participation (PPP) - Industrial Finance - 
Foreign Direct Investment(FDIs).  
2
References 
1. Yogesh Maheswari,   Managerial Economics, Phi Learning, 
Newdelhi, 2005 Gupta G.S., 
2. Managerial Economics, Tata Mcgraw-Hill, New Delhi Moyer 
&Harris, 
3. Anagerial Economics, Cengage Learning, Newdelhi, 2005 Geetika, 
Ghosh & Choudhury, , 
4. Managerial Economics, Tata Mcgrawhill, Newdelhi, 2011
*****
3
UNIT – I
Lesson I  The Fundamentals Of Managerial Economics
Reading Objective:
 At the end of the reading this chapter, the reader will be able to 
understand that economics is the study of mankind’s attempt to satisfy 
their unlimited wants with the help of limited resources.  Economics maybe 
divided in to 1) Micro Economics and 2) Macro Economics 3) Monitory 
Economics and 4) Fiscal Economics.  Micro economics deals with the basic 
principles of economics like law of demand, law of supply, consumption, 
production etc,.  Managerial economics deals with the principles of micro 
economics as applied to managerial decision making.  The reader may also 
be able understand the circle flow of economic activity. The circle flow is a 
chain in which production creates income, income leads to spending and 
spending in turn leads to production activity.
Lesson Outline:
 ? Why study Economics?
 ? Managerial Economics
 ? Nature of Managerial Economics
 ? Circular flow of economic activity
 ? Objectives of the firm
 ? Review questions
4
Introduction
 People have limited number of needs which must be satisfied if 
they are to survive as human beings. Some are material needs, some are 
psychological needs and some others are emotional needs. People’s needs 
are limited; however, no one would choose to live at the level of basic 
human needs if they want to enjoy a better standard of living. This is 
because human wants (desire for the consumption of goods and services) 
are unlimited. It doesn’t matter whether a person belongs to the middle 
class in India or is the richest individual in the World, he or she wants 
always something more.  For example bigger a house, more friends, more 
salary etc., Therefore the basic economic problem is that the resources are 
limited but wants are unlimited which forces us to make choices.  
 Economics is the study of this allocation of resources, the choices 
that are made by economic agents. An economy is a system which 
attempts to solve this basic economic problem. There are different types 
of economies; household economy, local economy, national economy and 
international economy but all economies face the same problem. The 
major economic problems are (i) what to produce? (ii) How to produce? 
(iii) When to produce and (iv) For whom to produce?
 Economics is the study of how individuals and societies choose 
to use the scarce resources that nature and the previous generation have 
provided. The world’s resources are limited and scarce. The resources 
which are not scarce are called free goods. Resources which are scarce are 
called economic goods.
Why Study Economics?
 A good grasp of economics is vital for managerial decision making, 
for designing and understanding public policy, and to appreciate how an 
economy functions. The students need to know how economics can help 
us to understand what goes on in the world and how it can be used as a 
practical tool for decision making. Managers and CEO’s of large corporate 
bodies, managers of small companies, nonprofit organizations, service 
centers etc., cannot succeed in business without a clear understanding of 
how market forces create both opportunities and constraints for business 
enterprises.
Page 5


1
MBA - I Semester                                                          Paper Code: MBAC 1002 
    
Managerial Economics    
 
Objectives 
 ? To introduce the economic concepts 
 ? To familiarize with the students the importance of economic 
approaches in managerial decision making To understand the 
applications of economic theories in business decisions  
Unit – I 
 General Foundations of Managerial Economics - Economic Approach 
- Circular Flow of Activity - Nature of the Firm - Objectives of Firms - 
Demand Analysis and Estimation - Individual, Market and Firm demand - 
Determinants of demand - Elasticity measures and Business Decision Making 
- Demand Forecasting.  
Unit-II  
 Law of Variable Proportions - Theory of the Firm - Production 
Functions in the Short and Long Run - Cost Functions – Determinants of 
Costs – Cost Forecasting - Short Run and Long Run Costs –Type of Costs - 
Analysis of Risk and Uncertainty. 
Unit-III  
 Product Markets -Determination Under Different Markets - Market 
Structure – Perfect Competition – Monopoly – Monopolistic Competition – 
Duopoly - Oligopoly - Pricing and Employment of Inputs Under Different 
Market Structures – Price Discrimination - Degrees of Price Discrimination. 
Unit-IV 
 Introduction to National Income – National Income Concepts - Models 
of National Income Determination - Economic Indicators - Technology and 
Employment - Issues and Challenges – Business Cycles – Phases – Management 
of Cyclical Fluctuations - Fiscal and Monetary Policies.
Unit – V
 Macro Economic Environment - Economic Transition in India - A 
quick Review - Liberalization, Privatization and Globalization - Business 
and Government - Public-Private Participation (PPP) - Industrial Finance - 
Foreign Direct Investment(FDIs).  
2
References 
1. Yogesh Maheswari,   Managerial Economics, Phi Learning, 
Newdelhi, 2005 Gupta G.S., 
2. Managerial Economics, Tata Mcgraw-Hill, New Delhi Moyer 
&Harris, 
3. Anagerial Economics, Cengage Learning, Newdelhi, 2005 Geetika, 
Ghosh & Choudhury, , 
4. Managerial Economics, Tata Mcgrawhill, Newdelhi, 2011
*****
3
UNIT – I
Lesson I  The Fundamentals Of Managerial Economics
Reading Objective:
 At the end of the reading this chapter, the reader will be able to 
understand that economics is the study of mankind’s attempt to satisfy 
their unlimited wants with the help of limited resources.  Economics maybe 
divided in to 1) Micro Economics and 2) Macro Economics 3) Monitory 
Economics and 4) Fiscal Economics.  Micro economics deals with the basic 
principles of economics like law of demand, law of supply, consumption, 
production etc,.  Managerial economics deals with the principles of micro 
economics as applied to managerial decision making.  The reader may also 
be able understand the circle flow of economic activity. The circle flow is a 
chain in which production creates income, income leads to spending and 
spending in turn leads to production activity.
Lesson Outline:
 ? Why study Economics?
 ? Managerial Economics
 ? Nature of Managerial Economics
 ? Circular flow of economic activity
 ? Objectives of the firm
 ? Review questions
4
Introduction
 People have limited number of needs which must be satisfied if 
they are to survive as human beings. Some are material needs, some are 
psychological needs and some others are emotional needs. People’s needs 
are limited; however, no one would choose to live at the level of basic 
human needs if they want to enjoy a better standard of living. This is 
because human wants (desire for the consumption of goods and services) 
are unlimited. It doesn’t matter whether a person belongs to the middle 
class in India or is the richest individual in the World, he or she wants 
always something more.  For example bigger a house, more friends, more 
salary etc., Therefore the basic economic problem is that the resources are 
limited but wants are unlimited which forces us to make choices.  
 Economics is the study of this allocation of resources, the choices 
that are made by economic agents. An economy is a system which 
attempts to solve this basic economic problem. There are different types 
of economies; household economy, local economy, national economy and 
international economy but all economies face the same problem. The 
major economic problems are (i) what to produce? (ii) How to produce? 
(iii) When to produce and (iv) For whom to produce?
 Economics is the study of how individuals and societies choose 
to use the scarce resources that nature and the previous generation have 
provided. The world’s resources are limited and scarce. The resources 
which are not scarce are called free goods. Resources which are scarce are 
called economic goods.
Why Study Economics?
 A good grasp of economics is vital for managerial decision making, 
for designing and understanding public policy, and to appreciate how an 
economy functions. The students need to know how economics can help 
us to understand what goes on in the world and how it can be used as a 
practical tool for decision making. Managers and CEO’s of large corporate 
bodies, managers of small companies, nonprofit organizations, service 
centers etc., cannot succeed in business without a clear understanding of 
how market forces create both opportunities and constraints for business 
enterprises.
5
Reasons For Studying Economics:
 ? It is a study of society and as such is extremely important.
 ? It trains the mind and enables one to think systematically about 
the problems of business and wealth.
 ? From a study of the subject it is possible to predict economic 
trends with some precision.
 ? It helps one to choose from various economic alternatives.
 Economics is the science of making decisions in the presence of 
scarce resources. Resources are simply anything used to produce a good 
or service to achieve a goal. Economic decisions involve the allocation 
of scarce resources so as to best meet the managerial goal. The nature of 
managerial decision varies depending on the goals of the manager.  
 A Manager is a person who directs resources to achieve a stated 
goal and he/she has the responsibility for his/her own actions as well as for 
the actions of individuals, machines and other inputs under the manager’s 
control. 
 Managerial economics is the study of how scarce resources are 
directed most efficiently to achieve managerial goals. It is a valuable tool 
for analyzing business situations to take better decisions. 
 Prof. Evan J Douglas defines Managerial Economics as “Managerial 
Economics is concerned with the application of economic principles 
and methodologies to the decision making process within the firm or 
organization under the conditions of uncertainty”
 
 According to Milton H Spencer and Louis Siegelman “Managerial 
Economics is the integration of economic theory with business practices 
for the purpose of facilitating decision making and forward planning by 
management”
 According to Mc Nair and Miriam, ‘Managerial Economics consists 
of the use of economic modes of thoughts to analyze business situations’ .
 Economics can be divided into two broad categories: micro 
economics and macro economics. Macro economics is the study of the