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Programme (1st Semester)

Post Graduate Diploma in Management


Name of Course: Managerial Economics Course Credit: 3

Semester: Ist 2018-2020 Duration (Hrs.): 3

Faculty : Dr. Hamideen Shah/ Dr. Gauri Modwel /Prof. Shagun Arora

Objectives: Managerial Economics is the application of economic theory and methodology to managerial decision-making problems within
various organizational settings. The objective of this course is to

 Introduce students to examine the various economic principles and analytical tools that can be used in business decisions and the decision
making problems.
 Sharpen their analytical skills through integrating their knowledge of the economic theory with decision making techniques.
 Inculcate understanding of efficient allocation of resources within the firm so that firm responds appropriately in the
completive and globalised corporate world

Skill/Learning Ourcomes

 Able to analyse Consumer Behaviour (Understanding of Demand/Supply and Equilibrium, Elasticity of Demand)
 Inventory Mangement (Demand Estimation and Forecasting)
 Managerial Decision Making using calculation of economic profi and economic cost (Marginal Cost , Explicit cost, Implicit
Cost & Opportunity cost, Economies of Scale, economies scope)
 Skill for Strategic decision making , Market Competition and International Competitiveness (Cartel & price leadership,
Porter’s Strategy and game theory- Nash Equilibrium)
Session Topic Pedagogy Title of Cases/Articles You Recding /Chapter Skill /Outcome
Session Tube links
No. Case
Study /You
Tube Links

1-2 How Business decision are made ? Video

ECON: Principle of
(3 hrs) Case Xerox Corporation Micro Economics Able to take Mangerial
Managerial Decision Making By Meachern/Kaur decision
(Book : Managerial Economics
Process and business environment: by Salvatore p.no. 8-9) P. No: 52-56 & 161-
 Effeciency of worker: 162
Factors affecting
efficiency to hone up the
skill Video P.No. 28 &161-162
 Government Policies

 Scope : Concept of Firm

and Profit ; Economic
Profit, Accouning Profit
 Opportunity Cost, Explicit Video ECON: Principle of Able to analyse
and Implicit Cost Micro Economics by Consumer Behaviour
https://www.youtube.com/watc p. No. 73-78
(4.5 Case
Demand h?v=1mo_D8qRjTU
hrs)  Demand
Demand of Sweet Potato in
 Demand Function &
USA ( Managerial Economics
Determinants by Salvatore, P.No. 100)
 Firm Demand- Market Case Case`: P.no. 85
 Shift in demand Why did Milk Price Soar
 Movement along the demand when Ganesha Started P.No. 131-137 Able to analyse
curve Consumer Behaviour
 Law of Demand Drinking Milk?
 Exceptions of law of demand
 Law of dimsihing Marginal
Utility –as an explaintaion of
law of demad ECON: Principle of
Micro Economics by
6 p. No. 78 - 82

 Law of supply
7  Supply function
 Shift in Supply curve Able to analyse
ECON: Principle of
(1.5 Consumer Behaviour
 Movement along the Micro Economics by
Hrs) supply curve Meachern/Kaur
p. No. 82-84
Determination of market
 Equilibrium Price p. No. 85-86

Impact of Change in Demand

and Shift in Demand

 Disequilibrium
Price floor and Price Ceilings

ECON: Principle of
Demand Elasticity: Case Micro Economics By Able to analyse
(1.5hrs • Meaning of Price Meachern/Kaur Consumer Behaviour
Elasticity P.No. 97-104
• Formula – Numerical i ) Smoke Out
• Arc Price Elasticity
• Determinants of price
• Significance of the study
of price elasticity.

9-10 ECON: Principle of

Income Elasticity Micro Economics By
(3 hrs) • Concept Meachern/Kaur
• Numerical ii) Economic Recesion and P.no. 116
• Types of Income Automotive Sale
iii) Why Good Hrvests……..
Cross Elasticity
• Concept
• Numerical
P.No 115-121
Application of Demand Supply Able to analyse
11 and Elasticity Consumer Behaviour
1.Is Drug Interdiction better than
drug Education
2. Why did OPEC Fail to keep the
Oil Prices High in the Long Run

3. Short Run and Lon Run Effect

of Rent Control

4. Per Unit of Tax and its

Distribution of Burden between
Producer and Consumer

Consumer Choice ad Demand : ECON: Principle of

Micro Economics
(Overview) By Meachern/Kaur
P.No. 138-145 Able to analyse
• Indifference Curve Consumer Behaviour
Theory of Demand
 Properties of
(1.5 Indiffernce Curve P.No. 148-150
 Budget Line
 Substitution and
Income effect

Demand Forecasting and

13 Demand Estination:
 Difference between demand Managerial
(1.5) estimation and demand Economics by
hrs Salvatore & Rastogi Inventory Mangement
Page no 159- 167
 Methods of demand

(a) Qualitative – Surveys,

Delphi – method, Expert
opinion method, collective
opinion method, market Case Reaching Consumer in the Managerial
studies and experiments, vanishing Mass Market Economics by
virtual shopping and virtual Salvatore & Rastogi
management. Page no 159- 168

Quantitative method:-
Trend projection technique:
Time Series Analysis

14-15 Case Forecasting the New Housing

starts with Time series Analysis
(3 hrs) Managerial
Demand Estimation : Economics by
Simple regression method. Case Salvatore & Rastogi
Page no 205- 224 Inventory Mangement

Practical Economics by
Assignment Salvatore & Rastogi
Page no 168-179
Production Theory and
16 Estimation: Case Study ECON: Principle of
 Production function : With Micro Economics
1.5hrs One variable input & Two By Meachern/Kaur
variable inputs, P.No. 163-167
 Optimal combination of
ECON: Principle of Decision Making
Micro Economics using calculation
 Discussion of T.P. , A.P. and By Meachern/Kaur of economic profi
M.P. diagrams, reasons. P.N0. 175-178 and economic cost
 Law of Variable Proportion

P.N0. 164-165

P.No. 167
Case Study 1. Law of Variable

2. Groery Shop and Law

of Production
(Book: Business Ecoonomics
By DD Chaturvedi, P.N0.
17-18 Returns to Scale ECON: Principle of
Micro Economics
3 hrs Concept of ISO products curve By Meachern/Kaur
ISO cost line. P.N0. 167-169

Explanation of the law of

Diminishing Marginal rate of

Explanation of Returns to scale P.N0. 179-183

reasons. Case Study
1. Economics at the Movie
2. Economies of Scale of
Internal and external economics and Medical World
Internal and external – diseconomies
of scale.

Difference between economies of

scale and economies of scope

19-20 Cost Theory Case Merry Product Corporation ECON: Principle of

 Concepts of sunk cost and (Book: Business Ecoonomics Micro Economics Managerial Decision
3 hrs Incremental Cost By DD Chaturvedi, P.N0. By Meachern/Kaur Making using
361-362 P.N0. 175-178 calculation of
 Contents various cost
concepts, diagram & economic profi and
examples Fixed and variable economic cost
cost, AFC, AVC, ATC, TFC,
 Calculation Of different
types of cost through Excel
 Short and long run costs &
discussion of SPAC and

21-22 Break Even Analysis

 Cost volume profit Analysis Managerial
 Concept of leverage and Case Break Even Analysis and Economics by
3 hrs numerical. Profitability of Aquaculture Salvatore P.No.322-
Practices in India (Book: 326
Salvatore, P.no. (327-328)
23  Market Structure
Market Structure and Degree of
1.5 hrs Competition:
Case 1.Farming – A volatile ECON: Principle of Skill for Strategic
Perfect Competition – Micro Economics
Market decision making ,
By Meachern/Kaur Market Competition
 Features,
2.Crisis in Textile Industry P.N0. 219-235 and International
 essential condition of
equilibrium (Book: Business Competitiveness
 Short period and long period Ecoonomics By DD
equilibrium Chaturvedi, P.N0.

24-25 Monopoly:
 Features Case 1.Just Another cup of coffee ECON: Principle of
3 hrs  Sources of Monopoly 2 The Mail Monopoly. Micro Economics Skill for Strategic
 short period and long period By Meachern/Kaur decision making ,
equilibrium 3..Perilious State Electricity P.N0. 245-259 Market Competition
 Control of Monopoly Board (Book: Business and International
Ecoonomics By DD Competitiveness
Chaturvedi, P.N0. 524-525
26-27 Monopolistic 1. Digiornomics ECON: Principle of Skill for Strategic
3 hrs  Features Case Micro Economics decision making ,
 short period and long period 2. Fast Food Industry Variety By Meachern/Kaur Market Competition
equilibrium is Spice of Life- Indian P.N0. 271-275 and International
 Selling Cost (Book: Business Ecoonomics Competitiveness
By DD Chaturvedi, P.N0.

28-29 Video
Oligopoly https://youtu.be/0z5xM5eJHi8 ECON: Principle of Skill for Strategic
3 hrs  features Oligopoly Micro Economics decision making ,
 Analysis of Kinked demand By Meachern/Kaur
Market Competition
– curve Model. Case  Classic case of Cartel P.N0. 277-279 & 285- and International
 Discussion on cartel & price 287
Formation- OPEC Competitiveness
leadership of Oligopoly
(Book: Business Ecoonomics
By DD Chaturvedi, P.N0.

30-31 Industry Specific Unit:

3 hrs Case 1.Market Leader(Book: ECON: Principle of Skill for Strategic
Pricing Practices Business Ecoonomics By DD Micro Economics decision making ,
 Price discrimination, types, Chaturvedi, P.N0. 592-593 By Meachern/Kaur Market Competition
when it is possible? P.N0. 256-258 and International
 Dumping Case 2.Antidumping And The Competitiveness
People’s Republic Of China
 Pricing in practice.
 Asymmetric Information

Strategic Behaviour in Business

32 ECON: Principle of
1.5 hrs Game theory: https://youtu.be/2d_dtTZQyU Micro Economics Skill for Strategic
 Zero Sum Game By Meachern/Kaur decision making ,
 NASH Equilibrium Video P.N0. 293-294 Market Competition
 Prisenor’s Dilemia and International

Class Policy

The schedule fixed for submission/presentation of assignments will be strictly adhered to. Attendance and late coming will be
monitored systematically in the class.

Group Assignmnets:

1. Project on Market Competition Analysis; a group of Student will choose the company and will analyse in what market
structure company is categorized on the basis of all characteristics of Market structure.

A. An overview of the Industry

 Market Size
 Average profit
 Revenue
 Tax provisions
 Factors Determining Market demand of the product of selected company
 Calculate elasticity of demand of the product of selected company

B.Scope and Impact Of the Industry on Indian Economy

B. Government Policies of the Industry

D.MARKET STRUCTURE OF Industry Selected, on the bss of charactersics

 Perfect Competition
 Monopoly
 Monopolistic Competition
 Oligopoly

E.Company Overview
F. SWOT Analysis, USP & Competitors

2. Projet on Demad analysis by selecting a product from the market and analyzing demand on the basis of factors of

3. Calculate elasticity od demand of the product by comparing the demand of the product before price increase and
after price increase and managerial decision will be taken whether increase in price will increase revenue of the copany
or not.

E. Conclusion

Internal and End-term Assesment weightages

Components Weightage (%
Class Participation and Attendance 10

Class Tests: Topics /Glossary (2) 15

Presentation & Assignment 15

Mid-term Examination 10

Final Exam 40

nd Term Viva 10

Text Book:

ECON: Principle of Micro Economics , Meachern/Kaur, CENGAGE

Reference Book :

1. Managerial Economis , Dominick Salvatore, and S.K. Rastogi, Oxford

2. Managerial Economics: Economics Tools for Today’s Decision Makers, Paul G.Keat, Phillip K.Y. Young and Sreejata Banerjee , Pearson

3. Managerial Economics, Craig H. Peterson, W Cris Lewis & Sudhir K. Jain, Pearson

4. Managerial Economics, Christopher R Thomas , MAGRAW HILL

Sulementary Readings:

1. Magazine: Economist

2. News Paper:Mint/ Economic Times/Busiess Standard

Managerial Economics


1. Demand- Need backed by purchasing power and willingness to buy.

2. Equilibrium-:A condition where there is no tendency for an economic variable to change
3. Expansion of demandWhen quantity demanded of a commodity increases as a result of the fall in the price, it is called extension
(or expansion) in demand (a movement down the demand curve
4. Contraction of demand:When quantity demanded of a commodity decreases as a result of the increase in the price, it is called
Contraction in demand (a movement upward the demand curve
5. Increase of demand:When demand of a commodity increases as a result of factors other than price, it is called increase in demand
(a shift in the demand curve right side). It could be due to increase in income, increase in price of substitute product etc.
6. Decrease of demand:When demand of a commodity decreases as a result of factors other than price, it is called decrease in
demand (a shift in the demand curve left side). It could be due to decrease in income, decrease in price of substitute product etc.
7. Law of demand: the inverse relationship between the price and the quantity demanded of a good or service during some period of
8. Substitute goods: goods that can be used in place of another good; there is a direct relationship between the price of one good and
the demand for another.

9. Substitution effect: the impact of a change in the price of a product on its relative expense, and the consequent impact on the
quantity demanded of that product.

10. Complementary Goods---A pair of goods where the quantity demanded of one increases when the price of a related good
11. Giffen Products:A Giffen good is an inferior good with the unique characteristic that an increase in price actually increases the
quantity of the good that is demanded. This provides the unusual result of an upward sloping demand curve. A Giffen good is
typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates
the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is
named after the economist Robert Giffen.

12. Inferior Product: A type of good for which demand declines as the level of income or real GDP in the economy increases. This
occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. Example Nokia
phone vs I- Phone

13. Marginal utility: the extra amount of satisfaction an individual derives from consuming one additional unit of a specific good or
service. Market period: a period of time in which producers of a product are unable to change the quantity produced in response to
a change in its price.

14. Law of diminishing marginal utility: marginal utility will decline as the consumer acquires additional units of a particular

15. Consumer's Surplus--The difference between what a consumer is willing to pay for each unit of a commodity consumed and the
price actually paid.

16. Income impact: the impact of a change in the price of a product on a consumer’s real income (purchasing power), and the
consequent impact on the quantity demanded of that product.

17. Marginal Rate of Substitution--The rate by which a consumer may substitute a quantity of one good for another holding his/her
level of utility constant
Elasticity of demand

18. Elasticity of Demand: % change in X variable due to changes in Y variable

19. Price Elasticity OF demand : % change in demand due to % change in price

20. Income elasticity: : % change in demand due to % change in income

21. Cross elasticity: % change in demand of X product due to changes in prices of Y product. Where x and Y are either substitutes or
complementary. It is a measure of how sensitive consumer purchases of one product are to a change in the price of some other

Supply :

22. Supply: The amount of good the seller is willing to sell at a particular price.

23. Law of supply: the direct relationship between the price and the quantity supplied of a good or service during some period of
time. Long run: a period of time in which all necessary adjustments to factors of production can be made.Rational behavior:
behavior that involves decisions and actions by individuals in order to achieve the greatest satisfaction or maximum fulfillment of
their goals.


24. Variable resources: factors of production whose quantity can be increased or decreased during a particular period.
25. Labour: a broad term the economist uses for all human physical and mental talents (excluding entrepreneurial ability) that can be
used in producing goods and services. Land: an economic resource that includes all the natural resources that go into the
production of goods and services.

26. Capital: all the manufactured aids to production used to produce goods and services and distribute them to the final consumer
without directly satisfying human wants. Fixed Cost: The cost which does not change with production is called as fixed cost.
Example Rent, salary of staff

27. Land- (labour-, capital-) intensive commodity: a commodity in which the production process uses relatively large amounts of the
land (labour, capital) resource compared with the average rate at which this resource is combined with others in the economy’s
production process

28. Economic rent: the price paid for the use of land and other natural resources that are completely fixed in total supply.

29. Economic resources: all the natural, human and manufactured resources that go into the production of goods and services

30. Law of diminishing returns: as successive units of a variable resource are added to a fixed resource, eventually the marginal
product attributable to each additional unit of the variable resource will decline.

31. Marginal Productivity: marginal productivity of a factor of production is generally defined as the change in output associated with
a change in that factor, holding other inputs into production constant.

The marginal product of labor is then the change in output (Y) per unit change in labor ( L). In discrete terms the
marginal product of labor is:
32. Average Productivity: Average productivity is the total production involved in a process divided by the number of variable unit
inputs employed. It is what each employee produces. If there are 100 employees producing 500 units per day, the average product
of variable labor input are 50 units per day. If average productivity is more than marginal productivity, average productivity will
decrease. If the average productivity is less than marginal productivity, average productivity will increase.

33. Constant Returns to Scale (CRS)--A long run production concept where a doubling of all factor inputs exactly doubles the
amount of output.

34. Decreasing Returns to Scale (DRS)--A long run production concept where a doubling of all factor inputs results in less
than double the amount of output

35. Economies of Scale: In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size, output,
or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over
more units of output. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit
fixed costs; i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a
larger number of goods. Economies of scale may also reduce variable costs per unit because of operational
efficiencies and synergies. Economies of scale can be classified into two main types: Internal – arising from within the company;
and External – arising from extraneous factors such as industry size.

36. Economies of Scope: An economic theory stating that the average total cost of production decreases as a result of increasing the
number of different goods produced. Another example is a company such as Proctor & Gamble, which produces hundreds of
products from razors to toothpaste. They can afford to hire expensive graphic designers and marketing experts who will use their
skills across the product lines. Because the costs are spread out, this lowers the average total cost of production for each product.


37. Excess capacity: when firms produce at a higher unit cost than minimum ATC at equilibrium.

38. Exclusion principle: when those who do not pay for a product are excluded from its benefits.

39. Variable costs: those costs that in total do vary with changes in output.

40. Explicit costs: monetary payments a firm makes to non-owners of the firm who are suppliers of labour, materials, fuel, transport
services, etc.
41. Implicit costs: the monetary incomes a firm sacrifices when it employs a resource it owns to produce a product rather than
supplying the resource in the market

42. Marginal cost: the addition to total cost of the production of one additional unit of the product. Marginal product: the additional
output of a particular good or service resulting from the addition of an extra unit of a resource.

43. Opportunity Cost: The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits
you could have received by taking an alternative action. Say you invest in a stock and it returns a paltry 2% over the year. In
placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding
6%. In this situation, your opportunity costs are 4% (6% - 2%).
44. Accounting Profit: It is a company's total revenue reduced by the explicit costs of producing goods or services. These explicit
costs involve direct monetary movement and include expenses such as the cost of raw materials, employee wages, transportation,
rent and interest on capital. Usually, accounting profit is limited to time periods, such as a fiscal quarter or year. TR- Explicit
Cost= Accountants Profit
45. Economic Profit (Or Loss): ' The difference between the revenue received from the sale of an output and the opportunity cost of
the inputs used. This can be used as another name for "economic value added" . TR- Explicit Cost- Implicit Cost = Economic

46. Marginal revenue product: the increase in total revenue resulting from the use of one additional unit of input.

47. Price discrimination:It is a pricing strategy where identical or largely similar goods or services are transacted at differentprices by
the same provider in different markets.

48. Variable Cost The cost which does change with production is called as variable cost. Example Rent, salary of staff

Cost – volume Analysis

49. Break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain
50. Operating Leverage: Operating leverage is the degree to whicha firm or project can increase operating income by increasing
revenue. It refers to the Firm’s total fixed costs to total variable costs. The higher this ratio, the more leveraged the firm said to be as firm
substitutes fixed for variable cost. Because its total fixed cost rise but variable cost fall. Therefore , A business that generates sales with a
high gross margins and low variable costs has high operating leverage

51. Market--A place or institution where buyers and sellers come together and exchange factor inputs or final goods and services. A
market is one particular type of economic rationing system.
52. Competition--The process of consumers bidding prices upwards or producers cutting prices in order to allow those agents to be
involved in a market trade.
53. Perfect Competition--A market structure where many firms exist, each with a small percentage of market share selling a
homogeneous product. These firms are all price-takers with no
54. Monopolistic Competition--A market structure similar to perfect competition in that there are a large number of firms competing
in a given industry. However, each firm is selling a differentiated product and may exploit brand preferences such that is may act
as a monopolist with respect to its own customers.
55. Monopoly--A market structure where only one firm exists in a given industry. This firm has a high degree of market power such
that it is able to act as a price-maker with respect to market prices.
56. Bilateral monopoly: a market in which there is a single seller (pure monopoly) and only one buyer (pure monopsony).

57. Producer's Surplus--The difference between revenue received and the variable costs of production for each unit of a commodity
sold. Represents a contribution to fixed costs and producer profits

58. Oligopoly: the situation when the number of firms in an industry is so small that each must consider the reactions of rivals in
formulating its price policy

59. Normal Profit:Normal profit is an economic condition occurring when the difference between a firm's total revenue and total cost
is equal to zero. Simply put, normal profit is the minimum level of profit needed for a company to remain competitive in the
market. The entrepreneur is earning normal profit, which is the minimum reward that keeps the entrepreneur providing their skill,
and taking risks.
60. Abnormal Profita firm makes more than normal profit it is called super-normal profit. Supernormal profit is also called economic
profit, and abnormal profit, and is earned when total revenue is greater than the total costs. Total costs include a reward to all the
factors, including normal profit. This means that, when total revenue equals total cost The level of super-normal profits available
to a firm is largely determined by the level of competition in a market the more competition the less chance there is to earn super-
normal profits.

61. Cartels: groups of firms that agree either formally or informally to set prices and output levels of particular products among

62. Collusion: a type of formal or informal arrangement to coordinate pricing strategies or fix prices

63. Monopolistic competition: a market in which there are a relatively large number of buyers.

64. Monopsony: a market in which there is only one buyer of the product

65. Price leadership: a type of ‘gentlemen’s agreement’ in which oligopolists automatically follow the price initiatives of the
dominant firm in an industry.

66. Price maker: a seller (or buyer) of a commodity that is able to affect the price at which the commodity sells by changing the
amount it sells (buys).

67. Price taker: a seller (or buyer) of a commodity that is unable to affect the price at which the commodity sells by changing the
amount it sells (buys).

68. Principal–agent problems: problems when a group that is supposed to be acting in the interests of another—such as managers for
shareholders—has incentives to act in ways that maximize their own welfare rather than that of the group that they are supposed to
be representing

69. Price bundling is a strategy whereby a seller bundles together many different goods/items being sold and offers the entire bundle
at a single price. There are two forms of price bundling -- pure bundling, where the seller does not offer buyers the option of
buying the items separately, and mixed bundling, where the seller offers the items separately at higher individual prices.
70. Penetrating Price: A marketing strategy used by firms to attract customers to a new product or service. Penetration pricing is the
practice of offering a low price for a new product or service during its initial offering in order to attract customers away from
competitors. The reasoning behind this marketing strategy is that customers will buy and become aware of the new product due to
its lower price in the marketplace relative to rivals

71. Skimming:Price skimming is a pricing strategy in which a marketer sets a relatively high initial price for a product or service at
first, then lowers the price over time. It is a temporal version of price discrimination/yield management.

72. Dumping In international trade, the export by a country or company of a product at a price that is lower in the foreign market than
the price charged in the domestic market. As dumping usually involves substantial export volumes of the product, it often has the
effect of endangering the financial viability of manufacturers or producers of the product in the importing nation. Dumping is also
a colloquial term that refers to the act of offloading a stock with little regard for its price.

73. Game Theory--A modeling technique that accounts for strategic behavior of economic agents reacting to the actions of others