NEW GLOBAL VISSION COLLEGE

Department Of Management
Degree of Master of Business Administration
Course Title: Managerial economics
Course Code: MBA 532
Credit Hours: 2
Course Instructor: Bereket Regassa (senior researcher, PhD Fellow)
Adress; E-mail: berujose@gmail.com (+251941042625)

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This course surveys the fundamental concepts and
methods of economic analysis for managers. Real world
decision making is emphasized.
Application of key economic concepts such as market
demand, market supply, market equilibrium, marginal
analysis, production, costs, revenue, profit and market
structure constitute the core material of the course.
Besides the macro economic variables such as National
income Concepts, Circular Flow of income, money
demand and supply, inflation, and unemployment will be
introduced as the thorough understanding of these
variables do have managerial decision making
implications in the business

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The main objective of this course is’-
to understand the basic economic principles and tools
that have application in making business decisions in
today's global economy.
to make the students aware basic concepts and tools of
economic analysis, which have an important bearing on
managerial decision-making
 to be familiar and with the economic system within
which the decisions are taken.
to understand the modern managerial decision rules and
optimization techniques;
to equip with tools necessary in the analysis of consumer
behaviors, as well as in forecasting product demand;
to equip with the tools for analyzing production and costs;
to understand and be able to apply latest pricing strategies;

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Chapter 1: Nature, Scope and Methods of Managerial Economics
Chapter 2; Theory of Firm
Chapter 3: Demand and Supply Analysis
Chapter 4; Demand sensitive Analysis (Elasticity of Demand
Chapter 5: Demand Forecasting
Chapter 6; Decision Analysis in business
Chapter 7: Production and Cost Analysis of Firms
Chapter 8: Market structure, Pricing and Strategies
Chapter 9: Basic Issues of Macroeconomics and business Decisions

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 Dwivedi, D. N. (2002) Managerial Economics, Sixth Edition
 Wilkinson N. (2005), Managerial Economics: A Problem-
Solving Approach, Cambridge University Press.
 Peterson And Lewis , Managerial Economics, Pearson Education,
Plc,1999
 Chrystal and Lipsey, Economics for Business and Management,
Oxford University Press, 1997.
 Graham Pearson , Managerial Economics, Addison Wesley
Publishing Company, 1980
 Maurice et.al Managerial Economics And Business Strategy,
Mcgraw Hill Primis, 2002
 D.C. Hauge: Managerial Economis, Analysis for Business
Decisions.
 Ravindra H. Dholakia & Ajay N. Oza:- Micro Economics for
Management Students. H. Cfraig Petersen W. CrisLewis:-
Managerial Economics
 Samuelson and W Nordhaus. Economics, Mc GrawHill
International Editions. (14th edition or latest one)

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 EVALUATION AND ASSESSMENT
Individual assignment/term paper
Group Assignment
Attendance
Final Exam

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Economics is the study of those activities of human beings, which
are concerned, with the satisfaction of unlimited wants by using
the limited resources.
Economics was made compulsory for engineers in the first decade
of 20th century.
Institute of Mechanical Engineers (UK) found that 90% of the
management decisions required some managerial responsibility
and most of them were basic in nature.
Hence, managerial economics was introduced in engineering and
management subjects.

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Resources are factors of production or inputs and they are scare in
nature. These include:
Land
Labor
Capital
Entrepreneurship
 Managerial economics is the study of how to direct scarce
resources in the way that most efficiently achieves a
managerial goals.
 It is the use of economic analysis to make business
decisions involving the best use (allocation) of an
organization’s scarce resources.

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 There are about 8 principles:
1.Role of manager is to make decisions(firm has unlimited
resources so managers must decide how resources are
employed)
2. Decisions are always among alternatives
3. Decision alternatives always have costs and
benefits mainly opportunity cost = next best alternative
foregone)
4.Anticipated objective of management is to increase the
firm’s value like Maximize shareholder’s wealth
5.Firm’s value is measured by its expected profits(like
time value of money, discount rates)

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6. The firm must minimize cost for each level of
production
7. The firm’s growth depends on rational investment
decisions
8. Successful firms deal rationally and ethically with laws
and regulations
 Generally,to establish appropriate decision rules,
managers must understand these principles and
environment in which they operate.

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 • Economists generally divide their discipline into two
main branches: micro and macro economics
A) Macroeconomics is the study of the aggregate economy.
It assess;-
◦ National Income Analysis (GDP)
◦ Unemployment
◦ Inflation
◦ Fiscal and Monetary policy
◦ Trade and Financial relationships among nations
B) Microeconomics is the study of individual consumers
and producers in specific markets. It assess;-
◦ Supply and demand

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 ◦ Pricing of output
◦ Production processes
◦ Cost structure
◦ Distribution of income and output etc.
 Both branches are the basis of managerial economics as
they provide methodologies and models for analysis
 And we need data to plug into these models to do
analysis and therefore managerial econ lends empirical
content to the study of effective management

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 Managerial economics is the application of economic
principles and methodologies to the decision-making
process within the firm or organization (Douglas).
 Managerial economics applies economic theory and
methods to business and administrative decision-making
(Pappas & Hirschey)
 Managerial economics refers to the application of economic
theory and the tools of analysis of decision science to examine
how an organization can achieve its objectives most
effectively (Salvatore)
 Managerial economics is essentially applied economics in the
field of business management.
 It is the economics of business or managerial decisions.
 Managerial decision making mainly deals with the question of
what to produce, how to produce and how much to produce.
 Managerial economics applies economic theories to business
problems- economic analysis to make decisions to achieve firm’s
goal
 Using marginal analysis, managerial economics provides
the foundation for understanding everyday business
decisions
 Managerial economics focuses on behavior & structure of
firms & industries and it provides foundation for
understanding strategic business decisions through
application of game theory
 Generally, Managerial economics is the application of economic
theory to management decision making
 EXAMPLES:
How to use economic theory to set prices that
maximize profits.
How to use economic theory to choose the cost-
minimizing production technique for a given scale of
output.
How to use economic theory to select the “optimal”
location for a new restaurant, grocery store, etc.
How to use economic theory to forecast near-term demand
for goods and services.

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1. What rates should Ethio-telecom charge for its wireless
telephone service?
2. How many BISHOFTU BUSES should MITEC
manufacture in the fourth quarter of the year?
3. Should an Investor open Chinese restaurant in
Hawassa?
4. Should DSTV leave the cable TV business?
5. Should HU charge differential tuition for business,
nursing, and engineering courses?
6. Does the current government policy motivate investment
in service sector or industrial sector ?

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Why do we want to apply economic analysis to business
problems?
 For the academic economist: to understand, to make
predictions about firm’s behavior
 For the businessperson: “to assist decision- making”, to
provide decision-rules which can be applied

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Managerial economics: is often concerned with finding
optimal solutions to decision problems. However, the
primary purpose of using models is to predict how firms
will behave, not to advise them what ought to do. Managers
are assumed to find the optimal solutions for themselves
and that is how predictions are made.

Management science: is essentially concerned with

techniques for the improvement of decision-making.
Firms are not assumed to find the optimal solutions for
themselves. They are found by the researchers who

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 then present them as prescriptions for what the firm
should do.

 Managerial Economics is evaluating Choice among the

available alternatives:
 It identifies ways to efficiently achieve goals. For
example, suppose a small business seeks rapid growth
to reach a size that permits efficient use of national
media advertising.
 It can be used to identify pricing and production
strategies to help meet this short-run objective quickly
and effectively.

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 Similarly, managerial economics provides production
and marketing rules that permit the company to
maximize net profits once it has achieved growth or
market share objectives.
 It is a tool for improving managerial decisions.
 Managerial economics has applications in both profit
and not-for-profit sectors.
 Managerial economics helps managers arrive at a set
of operating rules that aid in the efficient use of scarce
human and capital resources.
 By following these rules, businesses, nonprofit
organizations, and government agencies are able to
meet objectives efficiently.

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• A managerial economist in a business firm may carry on a wide range
of duties such as:
 Demand estimation and forecasting.
 Preparation of business/sales forecasts.
 Analysis of the market survey to determine the nature and extent
of competition.
 Analyzing the issues and problems of the concerned industry.
 Assisting the business planning process of the firm.
 Discoveringnew and possible fields of business endeavorand its
cost-benefit analysis as well as feasibility studies.
 Advising on pricing, investment and capital budgeting policies.
 Evaluation of capital budgets.
 Building micro and macro-economic models.
 Directing economic research activity.
 Briefing the management on current domestic and global
economic issues and emerging challenges.
 Interpretation, analysis and reporting of current economic
matters, upcoming developments in business, government and
foreign or global sectors.
Generally, Managerial Economics Assist Decision- Making through:
1. Adopting a general perspective, not a sample of one
2. Developing Simple models that provide stepping stone to
more complexity and realism
3. Thinking logically as this itself has value and can expose
sloppy thinking
 Following are the core topics of managerial economics:
• Demand Function and Estimation
• Demand Elasticity
• Demand Forecasting
• Production Function and Laws
• Cost Analysis
• Pricing and Output Determination in different
market structures
• Pricing Policies and Practices in Real Business
• Profit Planning and Management
• Break-even Analysis
• Game Theory
• Government and Business.
Managerial economists tend to rely on the scientific research
method in building and empirically testing business oriented
economic models. This scientific approach consists of the
following steps:
Defining the problem
Formulation of the hypothesis
Abstraction for the model building
Data collection
Testing the hypothesis
Deduction based on data analysis
Evaluating the test results
Conclusion for decisions