Managerial Economics - Free Study Notes for MBA MCA BBA ...

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Concept based notes

Managerial Ecnomics

MBA-(I Sem)

Swati Shastri Revised by: Nikita Kanoongo

MBA faculty (BISMA)

Biyani Institute of Science and Management,

2 Published by :

Think Tanks Biyani Group of Colleges

Concept & Copyright :

Biyani Shikshan Samiti

Sector-3, Vidhyadhar Nagar, Jaipur-302 023 (Rajasthan) Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007 E-mail : acad@ Website :;

First Edition : 2012 Price: Rs 120/-

While every effort is taken to avoid errors or omissions in this Publication, any mistake or omission that may have crept in is not intentional. It may be taken note of that neither the publisher nor the author will be responsible for any damage or loss of any kind arising to anyone in any manner on account of such errors and omissions.

Leaser Type Setted by : Biyani College Printing Department

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Preface

I am glad to present this book, especially designed to serve the needs of

the students. The book has been written keeping in mind the general weakness in understanding the fundamental concepts of the topics. The book is selfexplanatory and adopts the "Teach Yourself" style. It is based on questionanswer pattern. The language of book is quite easy and understandable based on scientific approach.

Any further improvement in the contents of the book by making corrections, omission and inclusion is keen to be achieved based on suggestions from the readers for which the author shall be obliged.

I acknowledge special thanks to Mr. Rajeev Biyani, Chairman & Dr. Sanjay Biyani, Director (Acad.) Biyani Group of Colleges, who are the backbones and main concept provider and also have been constant source of motivation throughout this Endeavour. They played an active role in coordinating the various stages of this Endeavour and spearheaded the publishing work.

I look forward to receiving valuable suggestions from professors of various educational institutions, other faculty members and students for improvement of the quality of the book. The reader may feel free to send in their comments and suggestions to the under mentioned address.

Swati Shastri Nikita Kanoongo

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Syllabus

Objective: With economies becoming increasingly market oriented, it is becoming important for players in the market place to learn to conduct themselves in a manner that will assure them of success. The objective of the course is to provide insights into these aspects. Students of management must be exposed to the time tested tools and techniques of managerial economics to enable them to appreciate their relevance in decision making.

Section-A

Nature and Scope of Managerial Economics, role and Responsibility of a Managerial Economist. The fundamental concepts of Managerial Economics, theory of the firm and the role of profits Theory of Demand- concept, determinants of Demand, Demand Function and econometric techniques. Theory of Supply- concept, determination, analysis, supply function. Elasticity of Demand- concept, measurement. Concept of Consumer's surplus.

Analysis and costs estimation-economic Concept of Cost, Different Types of Cost: Managerial uses of cost Function; Production Function to cost function-long run and short run total cost, Break-even Analysis Make or Buy Decisions.

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Market structure and pricing decisions-the competitive and monopoly model, monopolistic competition and oligopoly, pricing of multiple products. National income-concept and measurement. Business cycles, fiscal policy, Inflation. The new economy-definition and characteristics.

Section-B

Case study.

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Contents

S.No

1

2 3 4 5 6 7 8 9 10 11

Chapter Name

Meaning and Scope of Managerial Economics Supply Demand and Analysis Theory of Firm Elasticity of Demand Cost Concepts Break Even Analysis Market Structure Macro Economic Concepts Key Terms Unsolved Papers Bibliography

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Chapter 1

Meaning and Scope of Managerial Economics

Q1.

Define managerial economics.

Ans.

Managerial economics applies economic theory and methods to solve business

and administrative problems through the proper use of economic models in

decision making. Managerial economics prescribes rules for improving

managerial decisions. Managerial economics also helps managers recognize how

economic forces affect organizations and describes the economic consequences of

managerial behavior. It links traditional economics with the decision sciences to

develop vital tools for managerial decision making.

Managerial economics identifies ways to efficiently achieve goals. For example,

suppose a small business seeks rapid growth to reach a size that permits efficient

use of national media advertising. Managerial economics can be used to identify

pricing and production strategies to help meet this short-run objective quickly and

effectively

Q2.

Explain the scope of managerial economics.

Ans.

Scope of Managerial Economics:

ME deals with Demand analysis, Forecasting, Production function, Cost analysis,

Inventory Management, Advertising, Pricing System, Resource allocation etc.

Following aspects are to be taken into account while knowing the scope of ME:

1. Demand analysis and forecasting: Unless and until knowing the

8 demand for a product how can we think of producing that product. Therefore demand analysis is something which is necessary for the production function to happen. Demand analysis helps in analyzing the various types of demand which enables the manager to arrive at reasonable estimates of demand for product of his company. Managers not only assess the current demand but he has to take into account the future demand also.

2. Production function: Conversion of inputs into outputs is known as production function. With limited resources we have to make the alternative uses of this limited resource. Factor of production called as inputs is combined in a particular way to get the maximum output. When the price of input rises the firm is forced to work out a combination of inputs to ensure the least cost combination.

3. Cost analysis: Cost analysis is helpful in understanding the cost of a particular product. It takes into account all the costs incurred while producing a particular product. Under cost analysis we will take into account determinants of costs, method of estimating costs, the relationship between cost and output, the forecast of the cost, profit, these terms are very vital to any firm or business.

4. Inventory Management: Well the actual meaning of the term inventory is stock. It refers to stock of raw materials which a firm keeps. Now here the question arises how much of the inventory is ideal. Managerial economic helps the manager to take decision about holding of optimum level of stock of raw material and finished goods over a period of time so that in inventory management problem may be solved.

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