Managerial Economics
-by
 Dr. Shradha Malhotra Banga
 Web blog: drshradhabanga.jimdo.com
 Mail id: shrdha.malhotra@sharda.ac.in
About the Instructor
Shradha M Banga
 Academic Qualification
 Ph.D.: Rajasthan University, Jaipur
 M.B.A. (Investments) : ICFAI University
 M.A. Economics: Rani Durgawati University, Jabalpur
 Mastery in :
 Innovation and Commercialization, Entrepreneurship:
Massachusetts Institute of Technology, Cambridge, U.S.
 Globalization: University of Georgetown, U.S.
 Statistics Inference: University of California, Berkeley, U.S.
About the Course
 6 units covering:
 Nature, Scope and Methods of Managerial
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Economics (Chapter 1) theories,
Theory of the Firm (Chapter 2)
Demand Theory (Chapter 3)
Production and Cost Theory (Chapters 5 & 6)
Market Structure and Pricing (Chapter 8)
Pricing Strategy (Chapter 10)
Book
 Nick Wilkinson: Managerial Economics: A Problem
Solving Approach: Cambridge University Press: 2005
 (available for free download
 at
http://www.railassociation.ir/Download/Article/Book
s/Managerial%20Economics%20A%20Problem%20Solving%20Approach.pdf )
A few brain activators..
 Why is there discount after every season..
 Can u apply some economic theory here…
 Are a refrigerator seller what will u do in september
increase or decrease the price????
 How much would be the increase or decrease???
The decisions to be made by
managers..
 What to produce
 How to produce and
 For whom to produce..
 Activity:
 In Greater NOIDA you want to construct Water Park..
 How would you make the strategy..
Managerial Economics
 A means to an end by managers,
 in terms of finding the most efficient way of allocating
their scarce resources and
 reaching their objectives
Managerial Economics is related
to:
 Economic theory
 Decision Sciences
 Business Functions
Economic theory
 The main branch of economic theory with which
managerial economics is
 related is microeconomics, which deals essentially
with how markets work
 and interactions between the various components of
the economy
Micro Economics and Managerial
Economics
 There is one main difference between the emphasis of
microeconomics and that of managerial economics
 the former tends to be descriptive, explaining how
markets work and what firms do in practice,
 while the latter is often prescriptive, stating what
firms should do, in order to reach certain objectives.
 At this point it is necessary to make another very
important distinction: that between positive and
normative economics
Decision Sciences
 The decision sciences provide the tools and techniques
of analysis used in managerial economics.
 The most important aspects are as follows:
* numerical and algebraic analysis
* optimization
* statistical estimation and forecasting
* analysis of risk and uncertainty
* discounting and time-value-of-money techniques
Business Functions
 Relationship with business functions..All firms consist
of organizations that are divided structurally into
different departments or units, even if this is not
necessarily performed on a formal basis.
 Typically the units involved are:
1 production and operations
2 marketing
3 finance and accounting
4 human resources
Global Warming: A Problem
 Can Managerial Economics Solve this issue
 Solution: Kyoto Protocol
 https://www.youtube.com/watch?v=yXRGwHZxi6A
Elements/Areas of Managerial
Economics
 Starting point Obj of Business
 Pricing: Demand and Cost theory
 Consumer theory and Production theory
 Theory of firm & Competition theory
 Government policy for above
Methods to make Decisions
 Make objective
 Study theories:
 scientific theories are positive and normative
 Empirical observation: real world observation
 Empirical study can be Experimental/controllable or
Observational
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Example : Lab experiment and market experiment
 Econometrics
Managerial Economics
 Thus as a manager the main task is to firstly
understand the objective clearly,
 Then to make a study of prevalent theories: their
features and relationships with own conditions.
 These primary steps enables a manager to assume a
particular result (hypothesis) and then to create a
model for action.
Research Study through Model
 The model clarifies the expected relationship between
variables under a respective study.
 The foolproof analysis of data based on strong
assumptions gives way to acceptance or rejection of
theory for solving management problem.
 This complete process of testing economic theory is
referred to as Econometrics by Economists.
 A manager undertakes this process in each and every
decision of his professional life.
The take aways
 Economic theory: describes the relationship betweens
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between phenomenon that we observe
Good Theory makes testable predictions
Positive and Normative Study
Empirical Study
Experimental Study and observational study
Study of data
Econometrics