Far-western University
Faculty of Management
Course No. MGT ECO 511
Course: Managerial Economics
Nature of the course: Theory
Year: First
Level: Graduate
Full marks: 100
Pass marks: 45
Total periods: 45
Time per period: 1 hr
Program: MBM
1. Course Introduction
The main objective of the study is to provide comprehensive knowledge of microeconomics to
the MBM students. The course is designed to enhance the capabilities of the students to take
economic decisions and make economic predictions. The course also provides a deep foundation
for different subjects in management like general management, accounting, finance, and
marketing. The course emphasizes on real-world application of economics. It considers case
studies, current economic trends and developments from Nepalese and global perspectives. The
course intends to develop economic way of thinking in dealing with practical business problems
and challenges.
The first chapter of the course includes introduction of managerial economics, the second chapter
deals with demand analysis, business and economic forecasting while the third one covers the
theory of production. The fourth chapter considers costs theory and estimation and fifth one
comprises market structures and product pricing. The sixth chapter contains survey of theories of
firm and finally the seventh chapter consists of profit, investment and risk analysis.
2. General Objectives
 To acquaint the learners to build a perspective essential for the application of modern
economic concepts precepts, tool and techniques in evaluating business decision.
 To acquaint the learners of managerial economics and models and their uses to take
business decisions.
 To enable the students to know demand analysis and economic forecasting.
 To familiarize students with production theories.
 To enable students to know the cost theories and estimation.
 To emphasize on market structures and product pricing.
 To acquaint the learners with profit, investment and risk analysis
3. Specific Objectives and Course Contents
Specific Objective
Contents
 Explain about managerial economics. Unit I: Introduction to Managerial Economics (3)
 Discuss the role of managerial 1.1 Concept, nature and scope of managerial economics
economics and economist in 1.2 Role of managerial economists
1.3 Role of managerial economics in business decision
business decision making.
making
 Explain and analyze the basic
1.4
Concept of economic models and their uses in
concept of economic models and its
business decision making
uses in business decision making.
 Define demand function, its meaning
and types.
 Discuss the determinants of demand.
 Explain and analyze the methods for
measurement of elasticity of
demand.
 Discuss the use of elasticity concepts
in business decision making.
 Discuss and explain relationship
between
revenues
and
price
elasticity of demand.
 Explain the purpose, steps and
significance of forecasting.
 Discuss and analyze different
methods of forecasting.
 Discuss and explain production
function (short run and long run).
 Explain and analyze optimal
employment with one and two
variable inputs.
 Discuss the law of returns to scale.
 Explain production Possibility curve.
 Discuss and analyze optimum
product mix of a multi –product.
 Explain and discuss innovation and
global competitiveness.
 Discuss economies of scope
 Explain the concept of output
elasticity.
 Define explicit and implicit costs,
opportunity cost.
 Discuss and explain short and long
run cost function.
 Derive short-run and long-run cost
curve.
 Derive learning curve.
 Discuss empirical estimation of cost
functions.
 Explain basic concepts of different
market structure.
 Explain and discuss cartel, price
leadership and derive kinked
demand curve.
 Explain
cost
plus
pricing,
Unit II: Demand Analysis, Business and Economic
Forecasting
(8)
2.1.Demand function: Meaning and types
2.2.Determinants of demand
2.3.Elasticity of demand:
Measurement
and
determinants of price, income, cross and sales
elasticity's and their uses in business decision
making
2.4.Relationship between revenues and price elasticity
of demand
2.5.Purpose, steps and significance of forecasting
2.6.Methods of forecasting
2.6.1 Qualitative forecasts: Survey techniques
2.6.2 Quantitative forecasts: Time series analysis,
trend projection method and seasonal
variation
2.6.3 Smoothing techniques: Moving averages and
exponential smoothing
2.6.4 Simple regression model, input-output model
(Simple numerical examples)
Unit III: Theory of Production
(7)
3.1.Production Function (Short run and long run), Cobb
Douglas production function
3.2.Optimal employment of one variable input
3.3.Optimal employment of two variable input
3.4.Returns to scale
3.5.Production possibility curve
3.6.Optimum product mix of a multi-product
3.7.Economies of Scale: Innovations and global
competitiveness
3.8.Economies of scope
3.9.Concept of output elasticity
( Simple numerical examples)
Unit IV: Cost Theory and Estimation
(8)
4.1. Nature of costs: Explicit and implicit costs,
opportunity cost
4.2. Cost functions: Short run and long run
4.3. Derivation of short run cost curves
4.4. Derivation of long run cost curves
4.5. Derivation of learning curve/empirical cost curve
4.6. Empirical estimation of short and long term cost
functions
(Simple numerical examples)
Unit V: Market Structures and Product Pricing (9)
5.1. Concept of different market structures (Perfect
competition, monopoly, monopolistic competition,
oligopoly)
5.2. Pricing under oligopoly: Cartel, price leadership
and kinked demand curve model
Incremental cost pricing, multiple 5.3. Pricing strategies and policies: Cost plus pricing,
product pricing, transfer pricing,
incremental cost pricing, multiple product pricing,
peak-load pricing, skimming pricing,
transfer pricing, peak-load pricing, skimming
penetration pricing.
pricing, penetration pricing
5.4.
Strategic behavior and game theory: Nash
 Discuss and explain basic elements
equilibrium, Prisoner's dilemma
of game theory.
(Simple numerical examples)
(7)
 Discuss
and
explain
profit Unit VI: Survey of Theories of Firm
6.1.
Profit
maximization
model
maximization, value maximization
6.2. Value maximization model
and sales maximization model.
 Explain theory of Satisfying, 6.3. Sales maximization model
Williamson's model, Marris model, 6.4. Theory of satisfying
Cyert and March Behavioral theory. 6.5. Williamson's model of managerial discretion
6.6. Marris model of managerial enterprise
6.7. Cyert and March behavioral theory
(Simple numerical examples)
 Discuss and compare accounting and Unit VII: Profit, Investment and Risk Analysis (8)
7.1. Accounting profit vs. economic profit
economic profit.
 Analyze cost-volume profit and 7.2. Cost-volume profit analysis and operating leverage
7.3. Meaning and factors influencing investment
operating leverage.
decision
 Explain and discuss the meaning and
7.4.
Risk Analysis: Risk and uncertainty in managerial
factors
influencing
investment
decision making, measuring risk with probability
decision.
distributions, utility and risk aversion
 Discuss risk and uncertainty in
7.5. Information and risk: Asymmetric information and
managerial decision making.
markets for lemons, insurance market and adverse
 Analyze and measure risk with
selection, problem of moral hazard
probability distributions, utility and
(Simple numerical examples)
risk aversion.
 Explain asymmetric information,
markets for lemons, insurance
market and adverse selection.
 Discuss the problem of moral
hazard.
6. Prescribed Books
Text books
Dwivedi, D. N. (2008). Managerial Economics, 7th Edition, Vikash Publishing House PVT
LTD.
Hirschey, Mark (2009). Fundamentals of Managerial Economics, 9th Edition, Cengage Learning
Salvatore, D. (2012). Managerial Economics Principles and Worldwide Application, 7th Edition,
Oxford University Press.
Petersen, Craig H., Lewis, W Cris, Jain, Sudhir K. (2009). Managerial Economics, 4th Edition,
Indian Institute of Technology, Delhi.
Reference books
Mankiw, N. G. (2011), Principles of Microeconomics. Sixth Edition, USA: South Western
College publication.
P. Robert S., R. Daniel L., M. Prem L. (2012). Microeconomics, 7th Edition, Published by
Dorling Kindersley (India) Pvt. Ltd.
Dwivedi, D. N. (2012 ). Microeconomics, Theory and Application, 2nd Edition, Dorling
Kindersley (India) Pvt. Ltd.
Chandra, P. (2002), Project Planning, Analysis Financing, Implementation and Review, New
Delhi, Tata McGraw- Hill Publishing Company Limited.