Welcome to Managerial

Economics
Dr. Shylajan, C.S
Ph.D (MSE), PDF (IIM-C)


M:9440070524
Email: shylajan@ibsindia.org

Curriculum
Introduction to Economics
Demand and Supply Analysis
Consumer Behavior Analysis
Production and Cost Analysis
Market Structure
Pricing Practices

References
Microeconomics by ICFAI



Managerial Economics in
Global Economy by Domenick
Salvatore
Introduction to
Managerial Economics
What is the role of
Managers?
To Make Decisions
On What?
What to produce?
How to produce?
For whom to produce?
Whether to build a new plant?
Whether to close down a plant?
Whether to develop a new product?



What is the role of
Managers?

Firm has limited resources

Manager has to make a choice

Manager has to analyze Costs and
Benefits

What is the role of
Managers?
What is the anticipated objectives
of management?
Make Profit?

What is profit?
Revenue - Cost

What is the role of
Managers?
The firms Sales Revenue depends on
what?

Demand for its product?
Price of the product?

What is Demand?





What is the role of
Managers?
By minimizing Cost, firm can
maximize Profit

Manager should know the
MARKET STRUCTURE

Manager has to develop the
PRICING STRATEGY for his
products


Managerial Economics
focuses on
Identifying problems

Identifying opportunities

Analyzing alternatives

Making choice from alternatives that are
best from the standpoint of the firm


Overview


Scarcity and Economic problem
Economics
Production Possibilities
Opportunity Cost

Overview

Fundamental Economic Questions
Micro Economics
Market, Command and Mixed Economies
Role of Government
Summary


Scarcity and economic
problems

Source of any economic problem is
Scarcity of resources

For example,
Poverty
Unemployment
Inflation etc

Scarcity and economic
problems
We have

Limited Resources





But Unlimited Wants

Resources
Land
Labour
Capital
Entrepreneurship
Decision making

Unlimited wants
Scarce
Resources
Society makes choice
Economics
How to allocate scarce resource in
order to satisfy unlimited wants

It is about choice and decision-making

It is about efficient allocation of scarce
resource
We have to make a Choice

We can spend our limited resource to produce
Manufacture goods

Or

Agricultural

Society has to decide what to produce
Decision Making for
What?
To maximize social welfare

Consumer (maximize satisfaction/utility)
Firm (maximize profit)
Investor (maximize return on Invt)
Economy (achieve higher eco.growth)

By allocating scarce resources efficiently




Economic Efficiency
means

Optimal production of goods and
services

Maximum output with minimum
cost




Production Possibilities
We have limited resource


How do we allocate our resources to
produce manufactured goods and
Agricultural goods?


Production Possibilities


Output per
year
Production Possibilities
A B C D
Manufactured
goods
160 120 80 0
Agricultural
goods
0 40 80 160
What it shows?

We can produce more of one good
only by producing less of the
other good.
And every choice you make
has Opportunity Cost

What is the next best alternative
sacrificed due to this choice?





Then what is meant by
Opportunity Cost?


It is the best alternative sacrificed
for a chosen alternative

Opportunity Cost

What is the opportunity cost of
going to college?

It is the money you would have
earned if you worked instead.

Due to scarcity, every economic
agents face Fundamental
Economic Questions!
What to produce?

How to Produce?

For whom to produce?
What to produce?
Kind of goods and services

Agricultural goods, manufactured goods,
services?

Nature of goods-necessities or luxury
goods

Quantity in each category



How to Produce?

Techniques of production to be adopted

Labor intensive or capital intensive?

Decision depends on nature of economy

For whom to produce?


Produce only for those who have
ability to pay?

Health care services, for example

Micro Economics


Study of how a single
individual, household, firm
or industry choose to
allocate scarce resource in
order to satisfy unlimited
wants


Market Economy, Command
Economy and Mixed Economy




Market Economy

Market: A place or context in which buyers
and sellers buy and sell goods, services and
resources

Demand and Supply decide what to
produce, how to produce and for whom to
produce

Price gives the signal for producers and
consumers

Name some market economies?

Command Economy

State owns the means of production
(land, factories, financial institutions
etc)

Central planning authority takes
economic decisions like what to
produce, how to produce and for
whom to produce

Prices are determined by govt
authority

Command Economy
Central Planning authority allocates
resources for each sector

agriculture,
industry,
service sector

Name any command economy?
Mixed Economy
Both market economy and command
economy characteristics

Central planning authority takes
crucial economic decisions.

Market mechanism also plays an
important role

Name an example of mixed economy?

Role of Government in an
Economy

Produce

Distribute

Regulate




Role of Government in an
Economy
Provide certain public goods
such as law and order,
defense, Roads etc

Ensure equity through
taxation

Redistribute the resource to
the poor through subsidies
and welfare payments
Summary
Three fundamental economic
questions facing any economy
are..

Opportunity cost means.
The best option given up as a result
of choosing an alternative