m

SM-104

Unit 1 Introduction
Micro versus Macroeconomics; Theory of consumer behavior and demand; Consumer preferences;
Indifference curve; Consumer equilibrium; Demand function; Income and substitution effects;
Unit 2 Production Function
The Slutsky equation; Market demand; Elasticities; Average and marginal revenue; Revealed
preference theory of firm; Production functions; Law of variable proportions; Laws of return to
scale;
Unit 3 Cost Function
Isoquants; Input substitution; Equilibrium of the firm; Expansion path; Cost function; Theory of
costs; Short Run and long run costs; Shape of LAC; Economies and diseconomies of scale;
Unit 4 Theory of Pricing
Market equilibrium under perfect competition; Equilibrium under alternative forms of market;
Monopoly- pure and discriminating; Monopolistic competition; Oligopoly. Pricing practices and
strategies
Unit 5 National Indicators ( GDP, GNP, WPI, CPI )
National Income Accounting and Economic Indicators, Business Cycle-Inflation,-Fiscal and Monetary
Policies.

Managerial Economics

Reference Books:
Doane P.David Seward E.Lori Applied Statistics in
Business and Economics, Tata McGraw Hill

2007
Nordhaus & Samuelson , Economics, 18th Edition
Tata McGraw Hill 2007
Suma Damodaran , Managerial Economics Oxford
University Press 2006

 Managerial economics as defined by Edwin Mansfield is

"concerned with application of the economic concepts and
economic analysis to the problems of formulating rational
managerial decision.
It is sometimes referred to as business economics and is a
branch of economics that applies microeconomic analysis
to decision methods of businesses or other management
units.

As such, it bridges economic theory and economics in

practice.It draws heavily from quantitative techniques such
as regression analysis and correlation.

 Managerial Economics can be defined as the

use of economic models of thought to analyze
business situation.

 It is concerned with decision making of

economic nature.
It is goal oriented and prescriptive
It is pragmatic
It is both conceptual and metrical
Provides a link between traditional economics
and decision sciences.

Nature of Managerial Economics

Macro Economic conditions

Micro Economic Analysis
Normative vs. Positive approach
Integration of Economic Theory and business
practice.

With the help of economic theory, one can

understand the actual business behavior.Is
based on ceratin assumptions.
a. Profit Maximisation
b. Rationality at the time of decision making ie.
Perfect knowledge

Characteristics
Micro economic in nature
Takes the help of macro economics to
understand the environment
It is normative in nature rather than positive
It is conceptual and metrical.
The concepts are normally based on theory of
firm.

Significance of Managerial Economics

In order to enable the manager to become
more competent , it provides tools and
techniques.
Provides concepts rwelated to cost, demand
etc.
Helps in decision making : What should be the
product mix, What should be the production
techniques

Scope of Managerial Economics

Demand Analysis and Forecasting

Production and Cost
Competition
Pricing and Output
Profit and
Capital Budgeting
Product Policy, Sales Promotion and Market
Strategy

Micro-Economics
A part of the economic theory which deals with individual
parts of the economic system such as individual household,
individual firms or industries.
Instead of studying economic forest as a whole, it looks at its
individual parts (i.e. trees).
In microeconomics, scarcity and choice problems of individual
economic units are studied i.e. equilibrium of consumer ,
equilibrium of a firm and industry.
It is all about making choices in the presence of scarcity.
In nutshell, it is a microscopic study of working of individual
economic units of an economy.

Macro-Economics
It is that part of the economic theory which studies the
economy in its totality or as a whole.
Studies broad economy wide aggregate i.e. national
income, aggregate employment, general price level,
aggregate consumption, aggregate investment etc.
Also known as Theory of Income and Employment.
Macroeconomics considers the performance of the
economy as a whole.
Macroeconomics also includes an evaluation of the
relative success or failure of government economic
policies

Key Differences Between Micro and Macro

Economics
Micro-Economics

Macro-Economics

Study of individual economic units

Study of economy as a whole and

its aggregate

Central problem is price

determination and allocation of
resources

Central problem is determination

of level of income and employment

Major tools are demand and

supply

Major tools are aggregate demand

and aggregate supply

It focuses on individual equilibrium It analyses economys equilibrium

It is known as Price Theory

It is known as Income and

Employment Theory