MA - Unit 1

Managerial
Economics
UM14MB501
Dr. Sangeeta Merholia
Unit 1 : Introduction
PES University
Lecture 1
• Introduction to Managerial Economics
• Meaning
• Nature
• Scope & Significance.
PES University - MBA - Managerial Economics (UM14MB501) 2

Economics
• A social science that studies how individuals, governments, firms and
nations make choices on allocating scarce resources to satisfy their
unlimited wants.
• Scarce Resources –resources at the disposal ; which have alternative uses
• Unlimited Wants - Satiating
• Choice – Decision Making
• Derived from Greek word “oikonomikós” which means “relating to
household management”

Broad Classification of Economics
Macro – Economics Micro - Economic
• Macroeconomics is a branch of economics • Microeconomics is the branch of
economy which is concerned with the
dealing with the performance, structure, behavior of individual entities such as
behavior, and decision-making of an economy as market, firms and households.
a whole.
• Microeconomics is the study of
• Macro economics is the study of the whole particular markets, and segments of the
economy. It looks at issues such as
economy. It looks at ‘aggregate’ variables, such consumer behaviour, individual labour
as aggregate demand, national output and markets, and the theory of firms.
inflation.
• Preference relations, supply and
demand, opportunity cost.
• National Output and National income,
unemployment, inflation and deflation. • Used to determine methods of
improvement for individual business
• Used to determine an economy's overall health, entities.
standard of living, and needs for improvement.
Contd.. Classification of Economics
Macro – Economics Micro - Economic
• Monetary / fiscal policy. e.g. what
effect does interest rates have on • Supply and demand in individual
whole economy? markets
• Reasons for inflation, and
unemployment • Individual consumer behaviour.
e.g. Consumer choice theory
• Economic Growth
• Individual labour markets – e.g.
• International trade and globalisation demand for labour, wage
• Reasons for differences in living determination
standards and economic growth
between countries. • Externalities arising from
• Government borrowing production and consumption.
Approaches in studying Economics
Positive – Economics Normative - Economic
• It deals with the description and • It is concerned with the prescription or

the explanation of the economic what ought to be done in certain
behavior economic conditions.
• It is objective and fact based. • It is subjective and value based.
• It includes the development and • Example : The price of tomatoes should

be Rs 20 a kilo to give farmers a higher
testing of economics theories. living standard and to save the family
farm. This is a normative statement,
because it reflects value judgments.

Managerial Economics
• Managerial economics is the "application of the economic concepts
and economic analysis to the problems of formulating rational
managerial decisions".
• It is sometimes referred to as business economics.
• It is a branch of economics that applies microeconomic analysis to

decision methods of businesses or other management units.
• A key area of managerial economics is the theory of a firm that entails the
best mix of the scarce resources to maximize profits within the firm.

Managerial Goals
• $ sales, total revenue, gross income, market share
• Quantity of sales, Quantity of output, output per unit of input
(production efficiency)
• $ costs, total costs, cost per unit of output (cost efficiency)
• $ profits, total profits, profit per unit of output

Managerial Choices
• Output quantity • Production processes

• Output quality (input mix)
• Output mix • Input quantity
• Output price • Production location
• Marketing and • Production incentives

advertising • Input procurement

Nature of Managerial Economics

Nature of Managerial Economics
• Decision making and forward planning
• The problem of choice arises because resources at the disposal of a
business unit (land, labour, capital, and managerial capacity) are limited.
• Managerial Economics is both a science and an art.
• It has components of micro economics & macro economics
• Dynamic in nature because of the dynamic environment.
• Question : So then, is Managerial Economics “Positive or Normative
Economics”?

Scope of Managerial Economics
• • Demand Analysis and Forecasting
• • Cost and production analysis
• • Inventory management
• • Advertising
• • Pricing decision, policies and practices
• • Profit management
• • Capital management
Significance of Managerial Economics
• Reconciling traditional theoretical concepts in relation to the
actual business behavior and conditions, in making decisions
• Estimating economic relationships
• Predicting relevant economic quantities
• Formulating business policies and plans by evaluating choice of
alternatives
• In order to enable the manager to become a more competent
model builder, managerial economics provides a number of tools
and techniques.

Exactly how it is useful?
• It provides tool and techniques for managerial decision making.
• It gives answers to the basic problems of business management.
• It supplies data for analysis and forecasting.
• It provides tools for demand forecasting and profit planning.
• It guides the managerial economist.
• It helps in formulating business policies.
• It assists the management to know internal and external factors
influence the business.

Lecture 2
• Uses of Managerial Economics.
• Role and Responsibilities of Managerial Economist.

Use of Managerial Economics
• It is not limited to profit-making firms and organizations.
• It can also be used to help in decision-making process of non-profit
organizations (hospitals, educational institutions, etc).
• It enables optimum utilization of scarce resources in such organizations as well
as helps in achieving the goals in most efficient manner.
• Managerial Economics is of great help in
• Price analysis
• Production analysis
• Capital Budgeting
• Risk analysis
• Determination of Demand.

Use of Managerial Economics Contd..
• Managerial economics applies quantitative techniques to business decisions
using economic concepts such as
• Supply and Demand : Making Capital Investments Using the Laws of Supply and Demand
• Price elasticity : Assessing a Company's Investment Potential Using Price Elasticity
• Marginal analysis : Determine Whether to Enter a New Market Using Marginal Analysis
• Managerial economics can answer the following questions:

• When is the best time to make capital investments?
• What is a good way to determine whether a company's stock is a good investment?
• Should my company enter a new market with a new invention?

Role & Responsibilities of a Managerial
Economist
• A managerial economist can play a very important role by assisting the
management in using the increasingly specialized skill and sophisticated
techniques which are required to solve the difficult problems of
successful decision making and forward planning.
• Macro Environmental Analysis
• Advisory Role
• Cost-Benefit analysis in internal decision making
• Market Behaviour and competition analysis
• Assistance in preparation of overall development plans

Economist contd..
Macro Environmental Analysis
• Outlook for the national economy?
• Most important economic trend?
• What phase of the business cycle lies immediately ahead?
• Population shift and resultant changes in preferences & prices
• Examine the probabilities of transforming an ever-changing economic
environment into profitable business avenues

Economist contd..
Advisory Role
• Advising the management on public relations, foreign
exchange, and trade.
• He guides the firm on the likely impact of changes in
Monetary and Fiscal policy on the firm’s functioning.
• assists the management in the decisions pertaining to
• changes in price, investment plans, type of goods /services to be produced, inputs to
be used, techniques of production to be employed, expansion/ contraction of firm,
allocation of capital, location of new plants, quantity of output to be produced,
replacement of plant equipment, sales forecasting, inventory forecasting, etc.

Economist contd..
Cost-Benefit analysis in • techniques of production to be
internal decision making employed
• What changes in price need • expansion/ contraction of firm

to be made and when? • allocation of capital
• investment plans • location of new plants
• type of goods /services to be • replacement of plant
produced, equipment,
• inputs to be used • sales forecasting, inventory
forecasting, etc.
Economist contd..
Market Behaviour and competition analysis
• What are the demand prospects in new as well as established
markets?
• Where are the market and customer opportunities likely to
expand or contract most rapidly?
• What the prices of raw materials and finished products are
likely to be? How will it impact the sales?
• Type of market structure & Is competition likely to increase or
decrease?
Economist contd..
Assistance in preparation of overall development plans
• Preparation of periodical economic reports bearing on
various matters
• Preparing briefs, speeches, articles and papers for top
management for various chambers, committees, seminars,
conferences.
• He also provides management with economic information
such as tax rates, competitor’s price and product, etc. They
give their valuable advice to government authorities as well.

Lecture 3
• Relationship of Managerial Economics with other domains like
• Statistics
• Accounting
• Operations Research.

Statistics & Managerial Economics
• Statistical techniques are used in collecting processing and analyzing
business data, testing and validity of economics laws with their
economic phenomenon before they are applied to business analysis.
• The statistical tools for e.g. theory of probability, forecasting techniques,
and regression analysis help the decision makers in predicting the
future course of economic events and probable outcome of their
business decision.
• In order to base its price decision on demand and cost consideration, a
firm should have statistically derived or calculated demand and cost
function.

Accountancy & Managerial Economics
• Managerial economics has been influenced by the developments in
accounting techniques.
• A proper knowledge of accounting techniques is very essential for the
success of the firm because profit maximization is the major objective of
the firm.
• Managerial Economics requires a proper knowledge of cost and revenue
information and their classification.

Operations Research & Managerial Economics
• Linear programming and goal programming are two widely used OR
in business decision making. It has influenced ME through itsnew
concepts and model for dealing with risks.
• The significant relationship between ME and OR can be highlighted with
reference to certain important problems of ME which are solved with
the help of OR techniques, like allocation problem, competitive problem,
waiting line problem, and inventory problem..

Mathematics in Economics
• .
• The derivation and exposition of economic analysis, we require a set of
mathematical tools.
• The important branches of mathematics generally used by a managerial
economist are geometry, algebra, and calculus.
• Calculus is used for finding Optimization solutions for given problems.

Formulae.
(NOTE: Please make sure you learn these formulas, as we will be using these in later
units for calculating optimization solutions.)
Slope =

Simple Problems.
1. Calculate the slope of the supply curve given by Qs=2+0.5P
2. Calculate the slope of the inverse demand function given by
Px=30−2.5Qx
𝑑𝑦
3. Calculate given y=4x2+5x
𝑑𝑥
𝑑π
4. Calculate given π =-40+140Q-10Q2 (𝜋 is used to denote profits)
𝑑𝑄
𝜕π 𝜕π
5. Calculate & given π =50x-3x2-xy-4y2+60y
𝜕𝑥 𝜕𝑦
𝜕π 𝜕π
6. Calculate & given π =100P-w2+0.4P2-6w
𝜕𝑃 𝜕𝑊
Lecture 4
• Managerial Economics & Decision making.

Managerial Decision Making Process
The decision‐making process involves the following steps:
1. Define the problem.
2. Identify limiting factors.
3. Develop potential alternatives.
4. Analyze the alternatives.
5. Select the best alternative.
6. Implement the decision.
7. Establish a control and evaluation system
Role Play
Your Firm plans to Launch a new product in FMCG for which close
substitutes are there in the market.
You are the Managing Director of the company and have to take a final
decision on the launch of this product.
Your team consists of a Finance manager, Production manager, Managerial
Economist, Sales manager and yourself.
You need to enact a 10 minute scene, being, your discussion in the
conference room. The enactment must follow the decision making process
discussed.
You have 15 minutes for discussion before you can begin.

Lecture 5
• Fundamental Concepts of Managerial Economics
• Opportunity Costs

Production Possibility Curve/Frontier
• While making Decision, we face a situation of trade off, where we have to
select best optimum solution after utilising all resources available at its
best.
• We can select any one or combination of two (different combinations).
• Assume there is situation, where company is facing a situation to select a
product to invest all the resources.

Production Possibility Curve/Frontier
• PPC is a graph representing
production tradeoffs of an
economy given fixed resources.
• all points on the curve are

points of maximum productive
efficiency. (A,B,C,D,E,F)
• all points inside the frontier

(such as X) can be produced but
are productively inefficient;
• An outward shift of the PPF

results from growth of the
availability of inputs such as
physical capital or labour,
or technological progress (such
as Y)
Utility Concept
• “Utility is the quality in commodities that makes individuals want to buy
them.” - Robinson
• “Utility is the quality of a good to satisfy a want.” - Hibdon
Features : Concepts of Utility :
• Utility is Subjective • Initial Utility : utility derived from the first unit of a
• Utility is Relative commodity
• Utility and usefulness • Total Utility : TU = MU1 + MU2 + MU3 +…. + MUn
• Marginal Utility : MUn = TUn – TUn-1

Diminishing Marginal Utility Concept
• “The more we have of a thing, the less
we want additional increments of it
or the more we want not to have
additional increments of it.” -
Chapman
• “The additional benefit which a
person derives from a given stock of a
thing diminishes with every increase
in the stock that he already has.” –
Marshall
• “As the amount consumed of a good
increases, the marginal utility of the
goods tends to decrease.” - Samuelson

Credit for the Video : Jennifer Wilkinscolvin
https://www.youtube.com/channel/UCwjfzGdj6W5OQ2goThQJzJQ
Opportunity Cost Concept
• “The cost of an alternative that must be forgone in order to pursue a certain
action. Put another way, the benefits you could have received by taking an
alternative action.” – Investopedia
• “the opportunity cost of a choice is the value of the best alternative forgone, in
a situation in which a choice needs to be made between several mutually
exclusive alternatives given limited resources. Assuming the best choice is
made, it is the "cost" incurred by not enjoying the benefit that would be had by
taking the second best choice available.
• Ex: if a gardener decides to grow carrots, his or her opportunity cost is the
alternative crop that might have been grown instead (potatoes, tomatoes,
pumpkins, etc.).

Basic Mathematical Tools
• Functions What is a Function ?

• Variables A function is a special relationship where each
input has a single output.
• Equations It is often written as "f(x)" where x is the input
value.
• Graphs
• Slope Example: f(x) = x/2 is a function then
f(2) = 1
f(16) = 8
f(−10) = −5
Variables y = f (x, z, m)
• Dependent -- is what will be measured; it's what the investigator
thinks will be affected during the experiment.
• For example, the investigator may want to study coffee bean growth. Possible
dependent variables include: number of beans, weight of the plant, leaf surface area,
time to maturation, height of stem.
• Independent -- is what is varied during the experiment; it is what

the investigator thinks will affect the dependent variable.
• In our coffee bean example, possible independent variables include: amount of

fertilizer, type of fertilizer, temperature, amount of H2O, day length, all of these may
affect the number of beans, weight of the plant, leaf area, etc.

Equation if a function given is y = f (x, z, m)
• Linear equation : First degree – independent variables are raised to
power one only.
• Example : ax+b=y
• Quadratic equation : Second degree – at least one independent variable

is raised to power two.
• Example : ax2+bx+c=y
• Cubic equation : Third degree – at least one independent variable is

raised to power three.
• Example : ax3+bx2+cx+d=y

Graphs

Graphs

Slope concept : if for a Line y=mx+c
• The slope or gradient of a line is a

number that describes both
the direction and the steepness of the
line.
• In mathematical language, the slope ‘m’ of

the line is

Lecture 6
• CASE STUDY ON OPPORTUNITY COST
• Please Refer to the Handout of the case study provided.
• Read through the Case completely
• Make notes as you read through of the important observations
• Numbers
• Dates
• Values
• Decisions
• Issues
• Charts etc…
• Analyze the given case study and arrive at a solution with justification.

Lecture 7
• Incremental Principle.

Marginal Analysis
• It is Judging the impact of a unit change in one variable on the other.
Marginal generally refers to small changes.
• Marginal Revenue (MR) is change in total revenue per unit change in output
sold. MR = TRn – TRn-1
• Marginal Cost (MC) refers to change in total costs per unit change in output
produced MC = TCn – TCn-1
• If the marginal revenue is greater than the marginal cost, then the firm
should bring about the change in price or additional production. (MR>MC)
• The Necessary condition for profit maximizing output is where MC=MR

Marginal Analysis using calculus
• Marginal Revenue (MR) is the first derivate of the Total revenue function.
𝒅(𝑻𝑹)
MR =
𝒅𝑸
• Marginal Cost (MC) is the first derivate of the Total revenue function.
𝒅(𝑻𝐂)
MC =
𝒅𝑸

Incremental analysis
Differs from marginal analysis only in that it analysis the change in the
firm's performance for a given managerial decision, whereas marginal
analysis often is generated by a change in outputs or inputs.
As MC & MR are difficult to estimate where production and sales happen in
bulk, Incremental Analysis is useful.
Incremental analysis is generalization of marginal concept. It refers to
changes in cost and revenue due to a policy change.
For example - adding a new business, buying new inputs, processing
products, etc.
Change in output due to change in process, product or investment is
considered as incremental change.

Decision for Profitability
Incremental principle states that a decision is profitable if
• revenue increases more than costs;
• if costs reduce more than revenues;
• if increase in some revenues is more than decrease in others; and

Types
• Incremental Cost donates change in total cost resulting from a particular
decision of the firm. It refers to change in total costs due to change in
total output).
• Major components of Incremental Cost are :-
A. Present Explicit Cost
B. Opportunity Cost
C. Future Cost
• Incremental Revenue means change in total revenue resulting from a

decision of the firm.

Limitations
a) The concept can not be generalized because observed
behavior of the firm is always variable

Problem set 1
1. The total cost of producing 100 units is Rs 2500. and that of 101 units is
Rs 2550, calculate the Marginal Cost.
2. A company’s total revenue by sale of 100 units is Rs 3800. and that of
101 units is Rs 3900, calculate the Marginal Revenue.
3. If TR=300+4Q2, find the MR.
4. If TC=2800+Q+2Q2, find the MC.
5. The Price function is given by P=500-5Q , Find the total revenue if the
total production is 10 units.
6. A firm’s TR and TC function are as follows, TR=320Q – 2Q2 and TC=1800
+ 50Q + 3Q2 , calculate the profits at Q=20.
Problem Set 2
7. ABC international produces10000 cloths with its 80% of capacity.
Variable manufacturing cost is 8$ per unit. Fixed manufacturing cost is
$400,000 or $4 per unit. This products are normally sold to retailers at
$20 per unit. ABC international has one offer from XYZ international to
produce 2000 units at $11 per units. Acceptance of the product would not
affect the normal sales of product and additional unit can be produced
without increasing plant capacity.

8. The Party Connection prepares complete party kits
for various types of celebrations. It is currently
operating at 75% of its capacity. It costs The Party
Connection $20.50 to make a packet that it sells for
$25.00 It currently makes and sells 84,000 packets per
year. Detailed information is provided in the table. The
Party Connection has received a special order request
for 15,000 packets at a price of $20 per packet to be
shipped overseas.
A. Will the Party Connection be able to produce
the additional order with its fixed capacity?
B. Should the Party Connection accept this
special order based on profits?

Lecture 8
• Time perspective
• Discounting

Time Perspective
• According to this principle, a manger/decision maker should give due emphasis,
both to short-term and long-term impact of his decisions, giving apt significance
to the different time periods before reaching any decision.
• Market Period - refers to a time period in which supply is fixed while demand is
variable. The production cannot be increased suddenly in short notice.
• Short-run refers to a time period in which some factors are fixed while others are
variable. The production can be increased by increasing the quantity of variable
factors, but with in the constraints of current production capacity and contracts.
• Long-run is a time period in which all factors of production can become variable.
Entry and exit of seller firms can take place easily. Change in technology (very
long term) is also feasible.

Time Value of Money
• TVM is based on the concept that a dollar that you have today is worth
more than a dollar will be two years from now.
• Money that you hold today is worth more because you can invest it and
earn interest. After all, you should receive some compensation for
foregoing spending during the said duration (time).
• While taking decision related to any investment which will yield return
over a period of time, it is advisable to calculate its net present worth.
Unless net present value of returns calculated, it is not possible to judge
whether or not the cost of undertaking the investment today is worth.

• Discounting principle is stated as follows: “If a decision affects costs
and revenues at future dates, it is necessary to discount those costs and
revenues to present values before a valid comparison of alternatives is
possible.”
• The concept of discounting is found most useful in managerial
economics in decision problems pertaining to investment
planning or capital budgeting.

Time Value formulae
• The present value for single cash flow • PV = Present Value
• FV = Future Value
• n = period under consideration
• r = rate of interest at which the
• The present value for multiple cash flows amount compounds each
period

Problems set 1
1. Find the value of $10,000 earning 5% interest per year after two
years? (11025)
2. How much do I need to invest at 8% per year, in order to have
$10,000 in 4 years from now? (
3. What will a deposit of $4,500 at 10% annual interest which is
compounding semiannually be worth if left in the bank for six
years?

Problems set 2
4. What is the present value of $800 to be received at the end of 8
years, assuming an interest rate of 20 percent, quarterly
compounding?
5. Thirty years ago, Jesse Jones bought 10 acres of land for $1,000
per acre in what is now downtown Houston. If this land grew in value
at an annual interest rate of 8 percent, what is it worth today?
6.Joe Ferro's uncle is going to give him $250 a month for the next six
months starting today. If Joe deposits every payment in an account
paying a nominal annual interest rate of 6% compounded monthly,
how much will he have at the end of 6 months?

Lecture 9
• Equi-Marginal principle

Equi-Marginal Utility
• Marginal Utility is the utility derived from the additional unit of a commodity
consumed.
• The laws of equi-marginal utility states that a consumer will reach the stage of
equilibrium when the marginal utilities of various commodities he consumes
are equal.
• According to the modern economists, this law has been formulated in form of
law of proportional marginal utility. It states that the consumer will spend his
money-income on different goods in such a way that the marginal utility of
each good is proportional to its price, i.e.,
• MUx / Px = MUy / Py = MUz / Pz
• Where, MU represents marginal utility and P is the price of good.

Equi-Marginal Utility Contd..
• Similarly, a producer who wants to maximize profit (or reach
equilibrium) will use the technique of production which satisfies the
following condition:
• MRP1 / MC1 = MRP2 / MC2 = MRP3 / MC3
• Where, MRP is marginal revenue product of inputs and MC represents
marginal cost.
• Thus, a manger can make rational decision by allocating/hiring
resources in a manner which equalizes the ratio of marginal returns and
marginal costs of various use of resources in a specific use.

Equi-marginal Principle Assumptions
• Utility could be calculated in cardinal numbers.
• Consumer is rational. He desires maximum satisfaction from income.
• The income of purchaser is steady.
• The prices of products stay constant.
• A good can be split up in small portion. It means that the purchaser can spend his income as he
wishes.
• The customer has understanding of the utility offered by different products.
• Consumption is made at a certain period of time.
• Consumer will spend its money completely.

Explained
• A consumer has a given income which he has to spend on various goods he
wants.
• Now, the question is how he would allocate his money income among various
goods that is to say, what would be his equilibrium position in respect of the
purchases of the various goods.
• Suppose there are only two goods X and Y on which a consumer has to spend a
given income. The consumer’s behavior will be governed by two factors: first,
the marginal utilities of the goods and secondly, the prices of two goods.
Suppose the prices of the goods are given for the consumer.
• The law of equi-marginal utility states that the consumer will distribute his
money income between the goods in such a way that the utility derived from
the last rupee spend on each good is equal. In other words, consumer is in
equilibrium position when marginal utility of money expenditure on each
goods is the same.

Equi Marginal Utility of Goods X and Y
Units MUx (units) MUY (Units) Units MUx/PX MUY/PY
1 20 24 1 10 8
2 18 21 2 9 7
3 16 18 3 8 6
4 14 15 4 7 5
5 12 9 5 6 3
6 10 2 6 5 1
Let the prices of goods X and Y be
PX = Rs 2 and Py = Rs. 3 respectively.

Calculations : Suppose, the consumer has Rupees
19 with him to spend on the two goods X and Y.
Units (Q) MUx/PX PX*Q MUY/PY Py*Q
1 10 2 8 3
2 9 4 7 6
3 8 6 6 9 Rs 10 + Rs 9
= Rs 19
4 7 8 5 12
5 6 10 3 15
6 5 12 1 18
Equi-Marginal Utility

Contd..
• By looking at the table it is clear that MUx/PX is equal to 6 units when
the consumer purchases 5 units of goods X; and MUZ/PX is equal to 6
units when he buys 3 units of goods y.
• Therefore, consumer will be in equilibrium when he is buying 5 units of
good X and 3 units of goods Y
• He will be spending (Rs. 2×5+ Rs. 3×3) = Rs.19 on them.

• What is the Marginal utility derived from consumption of the 41st
product if Total Utility is 500 from the 40th product and 480 from
the 41st?

Lecture 10
• CASE STUDY ON UTILITY THEORY
• Please Refer to the Handout of the case study provided.
• Read through the Case completely
• Make notes as you read through of the important observations
• Numbers
• Dates
• Values
• Decisions
• Issues
• Charts etc…
• Analyze the given case study and arrive at a solution with justification.

MA - Unit 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MA - Unit 1

Uploaded by

Copyright:

Available Formats

Managerial

PES University - MBA - Managerial Economics (UM14MB501) 2

PES University - MBA - Managerial Economics (UM14MB501) 3

• It deals with the description and • It is concerned with the prescription or

• It is objective and fact based. • It is subjective and value based.

• It includes the development and • Example : The price of tomatoes should

PES University - MBA - Managerial Economics (UM14MB501) 6

• It is sometimes referred to as business economics.

• It is a branch of economics that applies microeconomic analysis to

PES University - MBA - Managerial Economics (UM14MB501) 7

PES University - MBA - Managerial Economics (UM14MB501) 8

• Output quantity • Production processes

• Output mix • Input quantity

• Output price • Production location

• Marketing and • Production incentives

PES University - MBA - Managerial Economics (UM14MB501) 9

PES University - MBA - Managerial Economics (UM14MB501) 10

PES University - MBA - Managerial Economics (UM14MB501) 11

PES University - MBA - Managerial Economics (UM14MB501) 13

PES University - MBA - Managerial Economics (UM14MB501) 14

PES University - MBA - Managerial Economics (UM14MB501) 15

PES University - MBA - Managerial Economics (UM14MB501) 16

• Managerial economics can answer the following questions:

PES University - MBA - Managerial Economics (UM14MB501) 17

PES University - MBA - Managerial Economics (UM14MB501) 18

PES University - MBA - Managerial Economics (UM14MB501) 19

PES University - MBA - Managerial Economics (UM14MB501) 20

• What changes in price need • expansion/ contraction of firm

PES University - MBA - Managerial Economics (UM14MB501) 23

PES University - MBA - Managerial Economics (UM14MB501) 24

PES University - MBA - Managerial Economics (UM14MB501) 25

PES University - MBA - Managerial Economics (UM14MB501) 26

PES University - MBA - Managerial Economics (UM14MB501) 27

PES University - MBA - Managerial Economics (UM14MB501) 28

PES University - MBA - Managerial Economics (UM14MB501) 29

PES University - MBA - Managerial Economics (UM14MB501) 31

PES University - MBA - Managerial Economics (UM14MB501) 33

PES University - MBA - Managerial Economics (UM14MB501) 34

PES University - MBA - Managerial Economics (UM14MB501) 35

• all points on the curve are

• all points inside the frontier

• An outward shift of the PPF

PES University - MBA - Managerial Economics (UM14MB501) 37

PES University - MBA - Managerial Economics (UM14MB501) 38

PES University - MBA - Managerial Economics (UM14MB501) 40

• Functions What is a Function ?

• Independent -- is what is varied during the experiment; it is what

• In our coffee bean example, possible independent variables include: amount of

PES University - MBA - Managerial Economics (UM14MB501) 42

• Quadratic equation : Second degree – at least one independent variable

• Cubic equation : Third degree – at least one independent variable is

PES University - MBA - Managerial Economics (UM14MB501) 43

PES University - MBA - Managerial Economics (UM14MB501) 44

PES University - MBA - Managerial Economics (UM14MB501) 45

• The slope or gradient of a line is a

• In mathematical language, the slope ‘m’ of

PES University - MBA - Managerial Economics (UM14MB501) 46

PES University - MBA - Managerial Economics (UM14MB501) 47

PES University - MBA - Managerial Economics (UM14MB501) 48

PES University - MBA - Managerial Economics (UM14MB501) 49

PES University - MBA - Managerial Economics (UM14MB501) 50

PES University - MBA - Managerial Economics (UM14MB501) 51

PES University - MBA - Managerial Economics (UM14MB501) 52