MANAGERIAL ECONOMICS

Rulina B. Viloria, MSE

Dr. Frederick A. Halcon
Edilberto B. Viray, Jr. MAE
Ma. Jesusa Avila – Bato, MAE
Chapter III: The Theory of Individual Behavior
Chapter III: The Theory of Individual Behavior
 Chapter III: The Theory of Individual Behavior
CASE STUDY: MANAGERIAL ECONOMICS
A Small Peek into Big B’s Car Collections: Does Law of Diminishing Marginal Utility
Hold Good?
Publication Month and Year : June 2009
Authors: Nitu Gupta & Akshaya Kumar Jena
Industry: Automobile, Region: Not Applicable
Source:
http://www.ibscdc.org/Case_Studies/Economics/Microeconomics/ME0010.htm

Abstract:
The case probes a fundamental law in economics The Law of Diminishing Marginal
Utility by analysing Amitabh Bachchan’s car collection. Indian cine superstar fondly
called Big B, has one of the best collections of cars in India comprising at least 11 cars.
A Rolls Royce Phantom, a Bentley Continental GT, a Mercedes SL500, a Porsche
Cayman S, a Range Rover, a Lexus LX470, a Mercedes E 240, a BMW X5, a BMW 7
Series, a Mercedes S320 and a Ford Mondeo bedeck his parking porch. ‘Though wants
are unlimited, a particular want is satiable’ is the banner line of the law of diminishing
marginal utility. Whether this law has failed with Big B shedding no passion in adding
to his stock of cars or there is a failure in proper interpretation of the law is an exciting
teaser for the reader. While the universality of the law is being debated, the case
makes a swift side swing to discuss and deliberate on business implications of the law.
 Chapter III: The Theory of Individual Behavior

Pedagogical Objectives:

To understand the relationship between marginal utility and total

utility
To analyze the law of diminishing marginal utility and its business
implications.

Keywords : Concept of Utility, Marginal Utility, Total Utility, Law of

Diminishing Marginal Utility, Relationship between Marginal Utility
and Total Utility, Consumer Behavior, Managerial Economics,
Microeconomics, Economics for Business, Business Economics,
Economics for Managers, Paul Samuelson
 Chapter III: The Theory of Individual Behavior
CASE STUDY: MANAGERIAL ECONOMICS
Tata’s Nano: A Small Car with Large Consumer Surplus?
Publication Month and Year : June 2009
Authors: Akshaya Kumar Jena
Industry: Car, Region: India
Source:
http://www.ibscdc.org/Case_Studies/Economics/Microeconomics/ME0012.htm

Abstract:
The case is a compelling study of the concept of consumer surplus with reference to
the launching of Nano, the cheapest car in the world. With INR 1 lakh or thereabouts,
Tata's Nano is all set to conquest the low-end segment of the car clientele. Nano is the
cheapest car, only in terms of cost and price but not in terms of quality and consumer
satisfaction. This promises loads of consumer surplus that will goad the hitherto car-
deprived denizens to drive one. Whether this low-end smart car will prove as a tribute
to Tata's enlightened business acumen or remain a pointer to adverse environmental
consequences - only the future will tell. But that entails an intelligent evaluation of the
cost and benefit to the society with the help of consumer surplus, the concept that this
case so lucidly articulates.
 Chapter III: The Theory of Individual Behavior
Pedagogical Objectives:

To understand the meaning of utility and its significance in business

To analyze the concept of consumer surplus
To explore the applications of consumer surplus

Keywords : Utility, Marginal Utility and Total Utility, Money as Measuring Rod of
Utility, Cardinal Measurement of Utility, Consumer’s Equilibrium, Maximization
of Satisfaction, Consumer Surplus, Relationship between Price, Demand Curve
and Consumer Surplus, Tata’s Nano, Intelligent Engineering, Innovations,
‘Nanomics’, World’s Cheapest Car, Mass Personal Transport and Environmental
Consequences, Private Cost and Social Cost, Consumer Behavior, Economics for
Managers, Microeconomics, Business Economics, Behavioral Economics,
Environmental Economics
Chapter IV: Production Process, Cost Analysis & Estimation
 
Chapter IV: Production Process, Cost Analysis & Estimation
 
 Chapter IV: Production Process, Cost Analysis & Estimation
 
CASE STUDY: MANAGERIAL ECONOMICS
Business Viability of Dish TV: Would it Break or Break-even?
Publication Month and Year : June 2009
Authors: Nitu Gupta & Akshaya Kumar Jena
Industry: Entertainment, Region: India
Source:
http://www.ibscdc.org/Case_Studies/Economics/Microeconomics/ME0016.htm

Abstract:
Meant to understand break-even point and shutdown point, this case study addresses
an important business dilemma: Does it make economic sense to remain in business
even when the firm is incurring losses? Of course, some would argue that these are just
start up losses and no business firm can be expected to turn in profits from the first
year of operations. Dish TV is the pioneer of Direct To Home (DTH) services in India.
The concepts of break-even and shutdown are analysed with reference to Dish TV in
the case study. The business viability depends on the cost rationalisation with a view to
achieving profit maximisation. Whether incurrence of loss by a firm should necessitate
its closure or it is worth the firm’s while to stay in business is probed with this case
study. When a firm achieves break-even and when it does not, and what needs to be
compared to decide the firm’s shutdown are some of the interesting aspects discussed
in the run of the case.
 Chapter IV: Production Process, Cost Analysis & Estimation
 
The case throws light on an important issue of business operation – a firm cannot
escape the costs, which have already been sunk. Whether Dish TV would be a success
story after achieving the break-even or there is the probability of it opting for
shutdown, depends not only on the realised figures of its annual report but also on its
future expectations concerning revenue and cost.

Pedagogical Objectives:

To understand the cost structure of a firm

To understand the concept of break-even point
To understand the concept of shutdown point.

Keywords : Breakeven Point, Shutdown Point, BEP Analysis, Marginal Cost Analysis,
Cost-Volume-Profit Analysis, CVP Analysis, Marginal Costs, Contribution per Unit,
Link between production and cost, fixed costs, variable costs, cost curves, business
viability, Shot-run Costs, Long-run Costs, Cost-Revenue Relationships, Total
Revenue, Marginal Revenue, Cost-Benefit Analysis, Cost and Revenue Analysis for
Decision Making, Managerial Economics, Microeconomics, Economics for Business,
Business Economics, Economics for Managers, Paul Samuelson