About the Author

Professor Yolanda D Vistal is a graduate of Bachelor in Applied Economics

from Polytechnic University of the Philippines; She graduated as Cum Laude and
a recipient of Academic Excellence award, President’s Lister and Dean Lister. She
was a resident full scholar and also received scholarship grants from the AFP
Provident Trust Fund.

She finished her Master in Management degree in University of Rizal

System and currently enrolled in Doctor in Business Administration program in
the University. She is now thirteen years in service in URS.

Her work experiences include Junior Analyst in Equitable Banking Corp,

Market Researcher in Astron Philippines Inc and Legal Staff in Palmera Homes
Inc before she entered her teaching career in Rizal State College Binangonan now
University of Rizal System Binangonan. She handles research and business
subjects. She has been appointed as Binangonan Campus Production
Coordinator as of this writing.
Course Title MANAGERIAL ECONOMICS
Course Code: BBE 4

Course Description​: Managerial Economics utilizes microeconomic theory and

econometric techniques to analyse business decision-making. Major topics include
demand analysis and estimation, forecasting, cost analysis and estimation, market
structures, pricing strategies, and game theory. The first half of the course will focus on
microeconomic fundamentals, including firm and consumer behaviour. After the
midterm, we will move on to more advanced topics. We will examine behaviour
under different market structures and utilize game theory to analyse strategies. The
course combines mathematical skills with applications and examples from economics
and business

Course Objectives

General Objectives: By the end of the course, students should be able to apply
economic reasoning to business decisions

Specific Objectives: This course aims to inspire students to:

1. Explain the fundamentals of individual and firm behaviour

2. Estimate simple equations using regression and apply them in an economic
context
3. Execute optimization techniques to determine equilibria under a variety of
market structures
4. Apply game theory to economic decision making
5. Formulate advanced pricing strategies under market power

COURSE STRUCTURE TOPIC WRITER

UNIT I
MODULE 1 Fundamentals of Managerial Economics Prof Yolanda D Vistal
MODULE 2 Demand Analysis Prof Yolanda D Vistal
MODULE 3 Supply Analysis Prof Yolanda D Vistal
MODULE 4 Market Equilibrium Prof Yolanda D Vistal
UNIT II
MODULE 5 Consumer Behavior Prof Yolanda D Vistal
MODULE 6 Firm Organization Prof Yolanda D Vistal
MODULE 7 Production Theory and Cost Analysis Prof Yolanda D Vistal
UNIT III
MODULE 8 Market Structures Prof Yolanda D Vistal
MODULE 9 Pure Competition Prof Yolanda D Vistal
MODULE 10 Monopoly Prof Yolanda D Vistal
MODULE 11 Game Theory Prof Yolanda D Vistal
MODULE 12 Oligopoly Prof Yolanda D Vistal
UNIT IV
 MODULE 13 Price Discrimination Prof Yolanda D Vistal

MODULE 14 Limit Pricing Prof Yolanda D Vistal

Course Schedule

Schedule COURSE MODULES TOPIC

UNIT I
Week 1-3 MODULE 1 Fundamentals of
Managerial
Economics
Week 3-5 MODULE 2 Demand Analysis
Week 5-6 MODULE 3 Supply Analysis
Week 7 MODULE 4 Market Equilibrium
UNIT II
Week 8-9 MODULE 5 Consumer Behavior
Week 9-10 MODULE 6 Firm Organization
Week 11-12 MODULE 7 Production Theory
and Cost Analysis
UNIT III
Week 13 MODULE 8 Market Structures
Week 14 MODULE 9 Pure Competition
Week 15 MODULE 10 Monopoly
Week 15 MODULE 11 Game Theory
Week 16 MODULE 12 Oligopoly
UNIT IV
Week 17 MODULE 13 Price Discrimination
Week 18 MODULE 14 Limit Pricing
Week 18 Final Examination
MODULE 1. Nature, Scope and Significance of Managerial Economics

Learning Objectives: At the end of this course the students must be able

1. To define managerial economics

2. To discuss how managerial economics contributes to business
decision-making
3. To narrate the scope of managerial economics
4. To show how economics is applied to business decisions
5. To point out some other topics in managerial economic

Learning Activity​: To analyse Porter’s Five Forces Model in a case study on Airline
Industry.

Students will be grouped in 4 with 5 members. The rest of the class with observe
and challenge the group presenters.

Course Content

Managerial economics is a discipline which deals with the application of

economic theory to business management. It deals with the use of economic concepts
and principles of business decision making. Formerly it was known as ​“Business
Economics”​ but the term has now been discarded in favour of Managerial Economics.

Managerial Economics may be defined as the study of economic theories, logic

and methodology which are generally applied to seek solution to the practical problems
of business. Managerial Economics is thus constituted of that part of economic
knowledge or economic theories which is used as a tool of analysing business problems
for rational business decisions. Managerial Economics is often called as Business
Economics or Economic for Firms.

Other Definitions of Managerial Economics:

“Managerial Economics is economics applied in decision making. It is a special

branch of economics bridging the gap between abstract theory and managerial
practice.” – ​Haynes, Mote​ and​ Paul.​
 “Business Economics consists of the use of economic modes of thought to
analyse business situations.” – ​McNair​ and ​Meriam

“Business Economics (Managerial Economics) is the integration of economic

theory with business practice for the purpose of facilitating decision making and forward
planning by management.” – ​Spencer​and ​Seegelman.

“Managerial economics is concerned with application of economic concepts and

economic analysis to the problems of formulating rational managerial decision.”
– ​Mansfield

Nature of Managerial Economics:

● The primary function of management executive in a business organisation is

decision making and forward planning.

● Decision making and forward planning go hand in hand with each other. Decision
making means the process of selecting one action from two or more alternative
courses of action. Forward planning means establishing plans for the future to
carry out the decision so taken.

● The problem of choice arises because resources at the disposal of a business

unit (land, labour, capital, and managerial capacity) are limited and the firm has
to make the most profitable use of these resources.

● The decision making function is that of the business executive, he takes the
decision which will ensure the most efficient means of attaining a desired
objective, say profit maximisation. After taking the decision about the particular
output, pricing, capital, raw-materials and power etc., are prepared. Forward
planning and decision-making thus go on at the same time.

● A business manager’s task is made difficult by the uncertainty which surrounds

business decision-making. Nobody can predict the future course of business
conditions. He prepares the best possible plans for the future depending on past
experience and future outlook and yet he has to go on revising his plans in the
light of new experience to minimise the failure. Managers are thus engaged in a
continuous process of decision-making through an uncertain future and the
overall problem confronting them is one of adjusting to uncertainty.

● In fulfilling the function of decision-making in an uncertainty framework, economic

theory can be, pressed into service with considerable advantage as it deals with
a number of concepts and principles which can be used to solve or at least throw
some light upon the problems of business management. E.g are profit, demand,
cost, pricing, production, competition, business cycles, national income etc. The
way economic analysis can be used towards solving business problems,
constitutes the subject-matter of Managerial Economics.
 ● Thus in brief we can say that Managerial Economics is both a science and an art.

Scope of Managerial Economics​:

The scope of managerial economics is not yet clearly laid out because it is a
developing science. Even then the following fields may be said to generally fall
under Managerial Economics:

1. Demand Analysis and Forecasting

2. Cost and Production Analysis
3. Pricing Decisions, Policies and Practices
4. Profit Management
5. Capital Management

These divisions of business economics constitute its subject matter.

Recently, managerial economists have started making increased use of Operation

Research methods like Linear programming, inventory models, Games theory, queuing
up theory etc., have also come to be regarded as part of Managerial Economics.

1. Demand Analysis and Forecasting:​ A business firm is an economic

organisation which is engaged in transforming productive resources into goods that are
to be sold in the market. A major part of managerial decision making depends on
accurate estimates of demand. A forecast of future sales serves as a guide to
management for preparing production schedules and employing resources. It will help
management to maintain or strengthen its market position and profit base. Demand
analysis also identifies a number of other factors influencing the demand for a product.
Demand analysis and forecasting occupies a strategic place in Managerial Economics.

2. Cost and production analysis​: A firm’s profitability depends much on its cost of
production. A wise manager would prepare cost estimates of a range of output, identify
the factors causing are cause variations in cost estimates and choose the
cost-minimising output level, taking also into consideration the degree of uncertainty in
production and cost calculations. Production processes are under the charge of
engineers but the business manager is supposed to carry out the production function
analysis in order to avoid wastages of materials and time. Sound pricing practices
depend much on cost control. The main topics discussed under cost and production
analysis are: Cost concepts, cost-output relationships, Economics and Diseconomies of
scale and cost control.

3. Pricing decisions, policies and practices​: Pricing is a very important area of

Managerial Economics. In fact, price is the genesis of the revenue of a firm ad as such
the success of a business firm largely depends on the correctness of the price decisions
taken by it. The important aspects dealt with this area are: Price determination in
various market forms, pricing methods, differential pricing, product-line pricing and price
forecasting.

4. Profit management​:​ Business firms are generally organized for earning profit
and in the long period, it is profit which provides the chief measure of success of a firm.
Economics tells us that profits are the reward for uncertainty bearing and risk taking. A
successful business manager is one who can form more or less correct estimates of
costs and revenues likely to accrue to the firm at different levels of output. The more
successful a manager is in reducing uncertainty, the higher are the profits earned by
him. In fact, profit-planning and profit measurement constitute the most challenging area
of Managerial Economics.

5. Capital management:​ The problems relating to firm’s capital investments are

perhaps the most complex and troublesome. Capital management implies planning and
control of capital expenditure because it involves a large sum and moreover the
problems in disposing the capital assets off are so complex that they require
considerable time and labour. The main topics dealt with under capital management are
cost of capital, rate of return and selection of projects.

Learning Activity​: To analyse Porter’s Five Forces Model in a case study on Airline
Industry.

Students will be grouped in 4 with 5 members. The rest of the class with observe
and challenge the group presenters.

Self-Assessment Questions (SAQ)

1. Managerial economics is the discipline which deals with the application of ‘economic
theory to business management’. Comment.

2. What are the major areas of business decision-making? How does economic theory
Contribute to managerial decisions?

3. Managerial economics is essentially the application of microeconomic theory of

business decision making. Discuss the statement.
.
4. What are the basic functions of a manager? How does managerial economics help
him in achieving his organizational goals?
5. Write a note on the nature and scope of managerial economics.

Answer to the Self-Assessment Question. (ASAQ)

1. Yes I agree that managerial economics is a discipline that applies economic

theories to business management. Example of economic theory which is very
useful to business management is demand and demand forecasting, demand
forecast determines the future sales of the business. Economic theories allows
the prediction of the business path and growth.
2. The major areas of business decision-making are the following human resource,
production, marketing and finance, material planning, operations and accounting.
The economic theories can contribute to managerial decision by applying the
different concepts and see how these theories can describe real life situations.
3. Microeconomic theories are highly applied to business decision making in this
subject, this time real application of microeconomics.
4. The basic functions of a manager is to plan, organize, human resource
management, monitor and evaluate business transations. Managerial economics
provides principles how to maximize his or her available resources and profit as
well.
5. The Nature of Managerial Economics is that the subject is both a science and an
art. It gives the manager the confidence on decision making by applying
systematic manner of solving business problems. The scope of managerial
economics includes demand analysis and forecasting, cost and production
analysis, pricing decisions, policies and practices, profit management and capital
management.

Rubric- Managerial Economics paper

Name : _________________________ Topic: _____________________________
________________________________ ________________________________

__________Is managerial economics clearly defined? (8 pts)

_________ Was the business environment clearly described? 4 pts
__________Was the functions of management identified? 4 pts
__________Status of industry as a whole: 4 pts
__________Were the scope of managerial economics explained? (4 pts)
_________ Microeconomics was identified as bases of the concepts to be applied in
this subject? 6 pts

References:

https://studylib.net/doc/10290262/unit-1-the-nature-and-scope-of-managerial-economics
-modul.
https://theintactone.com/2019/10/13/me-u1-topic-1-nature-scope-and-significance-of-ma
nagerial-economics/
https://www.academia.edu/34707649/Managerial_Economics_Textbook
https://www.tru.ca/distance/courses/econ3041.html
MODULE 4. The Model of Supply and Demand (equilibrium)

Equilibrium is defined to the price-quantity pair where the quantity demanded is equal to
the quantity supplied, represented by the intersection of the demand and supply curves.

In words, equilibrium exists if the amount sellers are willing to sell is equal to the
amount buyers are willing to buy.

The market price of a good is determined by both the supply and demand for it. In 1890,
English economist Alfred Marshall published his work, ​Principles of Economics,​ which
was one of the earlier writings on how both supply and demand interacted to determine
price. Today, the supply-demand model is one of the fundamental concepts of
economics. The price level of a good essentially is determined by the point at which
quantity supplied equals quantity demanded. To illustrate, consider the following case in
which the supply and demand curves are plotted on the same graph.

If we combine the supply and demand tables in earlier sections, we get the table below.
It should be obvious that the price of $3.00 is the equilibrium price and the quantity of
70 is the equilibrium quantity. At any other price, sellers would want to sell a different
amount than buyers want to buy.

Supply and Demand Together at Last

Price of Number of Number of
Widgets Widgets Widgets
People Want to Sellers Want to
Buy Sell
$1.00 100 10
$2.00 90 40
$3.00 70 70
$4.00 40 140

The same information can be shown with a graph. On the graph, the equilibrium price
and quantity are indicated by the intersection of the supply and demand curves.

Learning Activity

Compute Price Elasticity of Supply coefficients for a favourite company. Show how you
derive it. Interpret and explain what is the advantage of understanding the concept of
price elasticity to decision making.

Self Assessment Question (SAQs)

1. Define supply and law of supply

2. How each determinant affects the quantity supplied?
3. Study the effect of price changes to quantity supplied for LPG in your
areas.
Answer to Self-Assessment Question (ASAQs)

1. Supply is defined as the quantity of goods and services sellers are willing and
able to sell at various prices per unit of time.The law of supply states that as
price increases quantity supplied increases, vice versa.

Relationship to Supply
negative
positive
It depends
(good/normal/bad0
negative
positive
negative
negative
2.