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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
