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10B11PD311 Economics

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Title: Managerial Economics

Course Code: 10B11PD311 (2 1 0)

Objective

The course is designed to enable students to appreciate thecontribution of economics to the business process and to evaluateeconomics of corporate objectives, market structure and costs.

Learning OutcomesThe course will develop students' capacity to:

1. Think critically about the contribution of economics in business.

2. Understand the constraints the environment places on theorganization's pursuit of its goals

3. Analyze the economic environment in which an org. operates.

Methodology

The course will commence with making the students understandthe basic economic theories and subsequently learn about practicesfollowed by the organizations. The tutorials focus on the core

topics, articles on these topics and make use of IT tools.2

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Text Book

Managerial Economics, (Fourth edition) H.Craig Petersen, W. Cris Lewis

Reference books

Managerial economics in a global economy, Dominick Salvatore

Managerial economics, Damodaran, Suma

Managerial economics, Dwivedi, D.N.

Managerial economics, H.L.Ahuja

Managerial economics, Truett Lila J.

Managerial economics, Hirschey, Mark

Modern Economic Theory, K.K.Dewitt & Navalkur

S.K. Misra & V. K. Puri, Indian Economy, Himalaya Publishing House,2011.

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Topic

Introduction

Basics of Demand, Supply and Equilibrium

Theory of Consumer Choice

Demand forecasting

Production Theory & Analysis

Cost Theory and Analysis

Market Structure

Macro Economics: Issues

Macro Economics: Concepts4

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Exam % of Marks Duration Coverage

T-1 20 1 hr Syllabi covered up-to T-1.

T-2 20 1hr

Syllabi covered between T-1

& T-2.

End Sem.Exam 35 2 hr

Full Syllabi

Assignments

Tutorials,Projects,Quizzes &Regularity in

attendance. 25Entire

Semester

As decided and announced bythe teacher concerned in theclass at the beginning of thecourse

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Economy A system that provides living to thepeople

Economic activityany activity performed for

earning money for the satisfaction of human wants.

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A social science concerned with those aspects of social behavior

and those institutions which involve the allocation of scarce

resources among unlimited and competing uses, to produce and

distribute goods and services in the satisfaction of human

wants, which are innumerable and insatiable.

Scarce

Resources

Unlimited

Wants

Alternative uses of

resources

Produce & distribute goods & services

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WEALTH

WELFAREGROWTH

SCARCITY

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Wealth Definition by Adam Smith

a science which studies the nature, causes and growth of

the wealth of nations

Adam Smith Father of economics

Criticism

No attention was paid to man for whom wealth is really

meant.

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Welfare Definition by Alfred Marshall

study of mankind in the ordinary business of life; itexamines that part of individual and social action whichis most closely connected with the use of the materialrequisites of well being. Thus it is, on the one side, astudy of wealth; and on the other, and more important

side the study of man.

Criticism Non-material goods are not acknowledged by Marshall.

Limited to those activities which increase human welfare.

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Scarcity Definition by Lionel Robbins

is the science which studies human behavior as arelationship between ends and scarce means which havealternative uses.

Four characteristics

Man has unlimited wants or ends. The means or resources to satisfy them are limited. These resources are not specific & have alternate uses. Man has therefore to choose between wants.

Criticism Aggregates of the entire economy (national income, total

output etc.) and the problem of unemployment andinstability are not covered

The causes and growth patterns of national income and

per capita income are left untouched.11

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Concerns of Modern Economics

Allocation of societysresources among alternative uses

Efficiencies and inefficiencies of economic system

Distribution of the societys output among individuals and

groups

Ways in which production and distribution change over time

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Consumers

Producers

Administrators

Planners

Academicians

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Studies individual units like individual household,pricing of a firm, wages of a worker, profits of anentrepreneur, and so on.

Theory of Demand

Theory of Production

Price determination in Commodity market

Price determination in Factor market

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Microeconomic issues

choices: what, howandfor whom

the concept of opportunity cost

rational economic decision making: marginal costs

and marginal benefits

microeconomic objectives

efficiency

equity

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Deals with the average and aggregates of the system ratherthan the particular items in it, and attempts to define theseaggregates in a useful manner and examines theirrelationship.

Theory of National Income GDP/GNP/NDP

Theory of Employment

Unemployment, its types and rate

Theory of Money

Commodity money (barter), modern money (paper), bankingand insurance, interest rates.

Three purpose transaction, saving and speculative

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Theory of General Price Level

Wholesale Price index, consumer price index

Theory of International Trade

Balance of payment, foreign exchange rate and

purchasing power parity theory

Economics of Growth

Four factors human resource, natural resource,

capital formation and technological changes and

innovation

Business cycles, investment and savings

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Macroeconomic issues

growth

unemployment

inflation balance of payments problems

cyclical fluctuations

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Examples of microeconomic and macroeconomic concerns

Production Prices Income Employment

MicroEconomics

Production/Outputin IndividualIndustries andBusinesses

How much steelHow many offices

How many cars

Price ofIndividualGoods andServices

Price of medicalcare

Price ofgasolineFood pricesApartmentrents

Distribution ofIncome andWealth

Wages in theautoindustry

MinimumwagesExecutivesalariesPoverty

Employment byIndividualBusinesses &IndustriesJobs in thesteel industryNumber of

employees in afirm

MacroEconomics

NationalProduction/Output

Total IndustrialOutputGross DomesticProductGrowth of Output

Aggregate PriceLevel

Consumer priceindexProducer PriceindexRate of Inflation

NationalIncomeTotal wagesand salaries

Total corporateprofits

EmploymentandUnemploymentin the Economy

Total number ofjobsUnemploymentrate

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Production The process by which resources aretransformed into useful forms

Resources/ Inputs Anything provided by natureor previous generations that can be used directlyor indirectly to satisfy human wants.

Capital Things that have been already beenproduced that are in turn used to produce othergoods and services

Producers Those people or groups of people,

whether private or public, who transformresources into usable products.

OutputsUsable products

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Illustrates the principles of constrained choice,

opportunity cost and scarcity.

A graph that shows all the combinations of goods and

services that can be produced if all of societys

resources are used efficiently

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A d i ibili

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0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8Units of clothing (millions)

Unitsoffood(millions)

A production possibility curve

Units of food Units of clothing

a 8m 0.0

7m 2.2m

6m 4.0m

5m 5.0m

4m 5.6m

3m 6.0m2m 6.4m

1m 6.7m

0 7.0m

a

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A d ti ibilit

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0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8

Units of food Units of clothing

8m 0.0

b 7m 2.2m

6m 4.0m

5m 5.0m

4m 5.6m

3m 6.0m2m 6.4m

1m 6.7m

0 7.0m

b



Units of clothing (millions) 24

A d ti ibilit

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0

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2

3

4

5

6

7

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0 1 2 3 4 5 6 7 8

x




A d ti ibilit

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2

3

4

5

6

7

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0 1 2 3 4 5 6 7 8

x

w





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The production possibility curve

microeconomics and the production possibility

curve:

choices and opportunity cost

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I i t it t

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0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8

x

y1

1

Increasing opportunity costs

Unitsoffood

(millions)



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curve:

choices and opportunity cost increasing opportunity cost

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0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8

x

y1

1

2

1z


Unitsofrice(millions)

Units of wheat (millions) 30


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curve:

choices and opportunity cost increasing opportunity cost

macroeconomics and the production possibility

curve:

production withinthe curve

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Making a fuller use of resources

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v

Production inside

the production

possibility curve

O


F

ood

Clothing 32


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v

x

O


F

ood

Clothing 33


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v

x

y

O


F

ood

Clothing 34


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microeconomics and the production possibilitycurve:

choices and opportunity cost

increasing opportunity cost

macroeconomics and the production possibilitycurve:

production withinthe curve shifts in the curve

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Growth in potential output

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Now

Fo

od

Clothing

O


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Now

5 years time

O

Fo

od


Clothing 37


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Managerial economics consists of the use ofeconomic modes of thought to analyze businesssituations.

McNair and Meriam

The purpose of Managerial Economics is to showhow economic analysis can be used informulating business policies by Identifying possible courses of action

Evaluating the revenues and costs associated with eachcourse of action

Choosing the one course that best meets the goal orobjective of a firm

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The application of economic theory and the

tools of decision science to examine how an

organization can achieve its aims or

objectives most efficiently.

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Households The consuming units in an economy

Firms The producing units in an economy

Product or Output markets The market in which goods and services are

exchanged

Input or Factor markets The markets in which the resources used to

produce products are exchanged Labor market Capital market Land market

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Goods and services

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Goods and services

Consumer

expenditure

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Goods and services

Consumer

expenditure

Services of factors of production (labour, etc)

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Goods and services

Consumer

expenditure


Wages, rent

dividends, etc.

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Goods and services

Consumerexpenditure


Wages, rent

dividends, etc.

GOODS MARKETS

FACTOR MARKETS

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Engineering is a great applied science that studies how to make

solutions to practical scientific problems.While engineering deals with how to solve these problems,

economics is the complementary science of how to optimize these

solutions.Economics analyses production mathematically and statistically. For

engineering, microeconomics is the invaluable tool to determine

optimization with given resource constraints

The best solutions in engineering are not always the best-designedor

the ones of highest quality but also the ones which are cost-effective

and efficient given constraints. Economics can master these concepts.

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