Course 1.

5 Managerial Economics
Trimester I
Course Instructor Dr. Sarbani Mukherjee

About the Course

Managerial economics is applied microeconomics and focuses on the issues that are of
relevance and importance to managers. This course uses microeconomic theory to
assist in solving business problems. Topics include market demand-supply, consumer
behaviour, production cost, market structure and firm behaviour, uncertainty and
externalities, and government regulation.

Course Goal
To understand theories of consumer behavior, firm behavior and decision making
problems through logical discussion of various relevant concepts and techniques.

Course Objectives
 Measure the responsiveness of consumers' demand to changes in the price of a
good or service, the price of other goods and services, and income
 Understand how prices get determined in markets, how market participants
benefit in the form of consumer surplus and producer surplus, and what are the
consequences of government intervention
 Understand the different costs of production and how they affect short and long
run decisions
 Derive the equilibrium conditions for cost minimization and profit maximization
 Understand economies of scale, diseconomies of scale, economies of scope, and
cost complementarities, and how each affects the cost of production
 Explain the principal-agent problem and why different forms of compensation
exist
 Understand the four basic market models of perfect competition, monopoly,
monopolistic competition, and oligopoly, and how price and quantity are
determined in each model
 Understand how game theory can be used to explain a number of business
decisions
 Understand role for the government in market economies

Pedagogy
The course will commence with making the students understand the basic economic
theories and subsequently learn about strategies and practices which an organization
may follow to achieve its goal.
 Lectures and Power point Presentations
 Case Studies
 Group Discussions and Debates
 Audio Visuals and Role Play

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 Modules and Session Plan
Module Topics Contents Readings Assessment
of Learning
Introduction and Overview:  Understanding the basic R2, R5 Individual
1 Relevance of Economics in concepts of managerial Assignment
business decision making, economics.
Scope of managerial  Understanding the economic
economics, Economic Models, goals of the firms and optimal
Positive and normative decision making.
economics, Circular Flow  The applications of
Model and other basic Discounting Principle and
concepts Opportunity Cost Principle.

Analysis of Demand and  Basic concepts of Demand, R1, R2 Solving of analytical

Supply: Supply and Equilibrium and problems (individual
2 Concept of Demand - Supply their determinants. assignment)
and Equilibrium Demand and  Analyzing the effect of these
Supply Functions - Market factors on market dynamics.
Equilibrium, Elasticity  Define and measure elasticity.
 Apply the concepts of price,
cross and income elasticity.
 Understand the determinants
of elasticity.
 Analyze how elasticity affects
revenue.
Theory of Consumer  Analyzing Consumer Choice R1, R3 Case Analysis, Group
Behaviour: and Preference - Utility Assignment
3 Theory of consumer Analysis and Indifference
behaviour: Consumer Curve
preferences; budget  Consumer’s Income and
constraint, utility Budget Line
maximization and the  Understanding consumer’s
derivation of the consumer equilibrium - maximization of
demand curve, income and utility subject to budget
substitution effects – Price constraint
Effect
Theory of Production and  Understanding and estimating R2, R5 Problems solving
4&5 cost: production function. and Case Analysis,
Production and cost analysis,  Law of DMR and three stages Individual
short run long run production of production. Assignment
functions, cost curves – short  Isoquant and Isocost and
and long run – marginal cost finding out optimal
of production. Isoquants, cost combinations of inputs.
curves, optimal combination Understanding cost function
of inputs. Optimization – and the difference between

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 costs, expansion path, short-run and long-run cost
economies of scale and scope function.
- Price, Profit Maximization,  Establish the linkage between
Marginal, Average and Total production function and cost
Revenue Products function.
 Concepts of relevant costs.
 Understanding and
calculating break-even point.
Market Structures:  Compare and contrast four R4 Role Play and Group
6 Market forms including basic market types. Assignment
Perfect Competition,  Meaning and price-output
Monopoly, Monopolistic decisions of perfectly
Competition and Oligopoly competitive firm, both in
short and long-run.
 Price-output decisions of
monopoly firm, both in short
and long-run.
 Explain how fixed-cost and
variable-cost determine firm’s
break-even level of output.
 Concepts of monopolistic and
oligopoly competition.
 Pricing and output decisions
of monopolistic and oligopoly
firm.
Choice under uncertainty and  Risk and Uncertainty in R3 Group Assignment
7 Game theory: decision making
 Expected value or expected
utility of outcomes
 Game theory
 Nash Equilibrium
 Prisoners’ Dilemma
 Sequential and Cooperative
decisions
Macroeconomic concepts:  Understanding basic concepts R2
8 National Income – Concept of macroeconomics.
and Measurement, Monetary
Policy and Fiscal Policy;
Balance of Payment, Trade
Policy

Learning Outcomes
After the completion of the course, students will be able to –
1. Understand the scope of managerial decision making process
2. Analyze demand - supply and thereby assess market conditions
3. Design business strategies, including costing, pricing, product differentiation, and

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 market environment according to the nature of products and the structures of
the markets.
4. Analyze real-world business problems and make optimal business decisions with
the help of a systematic theoretical framework.
5. Understand the economic concepts, tools of analysis and their relevance to
business decision-making
6. Analyze the influence of economic environment on business decisions.

Course Evaluation
Mid Term Examination (Short Notes, 25%
Multiple Choice Questions, Analytical
questions, Case Analysis)
End Term Examination (Short Notes, 50%
Multiple Choice Questions, Analytical
questions, Case Analysis)
Assignments (Individual and Group) 20%
Evaluation is based on understanding
concept, clarity, presentation skills,
relating to business decision making
process, Class participation)
Attendance 5%

References:
R1: Managerial Economics: Concepts and Applications by Christopher.R.Thomas and
S.C.Maurice: Tata Mc Graw Hill 2005, pp 1 – 748. Call No. 338.5 THO
R2: Managerial Economics by D.N. Dwivedi,, Sixth Revised Edition, 2004. Call No.338.5
DWI
R3: Microeconomics by Robert S. Pindyck and Daniel L. Rubinfeld, Third Edition, 1995.
Call No.338.5 PIN
R4: Managerial Economics (firms, markets and business decisions) by Ian Dobbs. Call No.
338.5 DOB
R5: Managerial Economics by H. Craig Petersen and W.Cris Lewis. Call No. 338.5 PET
R6: Modern Microeconomics (second Edition) by A. Koutsoyiannis Call No. Kou.2

Additionally, case analysis and Journal papers to be distributed.