Managerial Economics Notes: Managerial economics is a relatively fresh subject that has been increasingly popular in B-Schools and economics classes around the world. Various reasons, including globalization, industry revolution 4.0, digitization, technological advancement and much more are the reasons behind this trend.
So let us answer some basic questions of managerial economics that will help you cover almost all the topics in your curriculum:
Managerial Economics Notes | What is managerial economics?
Spencer and Siegelman have defined the subject as “the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.”
Mansfield said, “Managerial economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.
Managerial economics is a subset of microeconomics, which deals with market dynamics and consumer behaviours with respect to small scale industries and large firms. Managerial economics draws its theories and principals from the fundamentals of microeconomics. Chunks of economic data are used by companies to analyze buying patterns, control inventory storage, market behaviour and much more which helps run the company’s operations better and ultimately result in good profit margins.
Managerial economics helps students learn decision-making skills by analyzing the economics of the company and the market with respect to the company’s business model.
Two basic terms that need to be understood here are:
Supply and demand, as mentioned in the table above, will always be the two controlling factors in managerial economics for proper and efficient decision making.
The law of supply and demand is a theory that explains the interaction between the sellers of a company and the buyers for that company. This theory very aptly explains the cause and effect relationship between the availability of a particular product or service and the desire (or demand) for that product or service has on its retail pricing system.
Managerial Economics Notes | Three main attributes of managerial economics are:
Let us discuss each of the mentioned attributes in brief:
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Analysis and forecasting
Analysis and forecasting of the demands from the market is an important attribute for any company to make calculated business development decisions. It involves variations in decision among process in terms of organizational structure, which means, the decision making can come either from the top or bottom of the hierarchical pyramid according to the situation. Demand estimation is an integral part of decision making, which helps in assessing sales in the coming quarter and fiscal years which further helps in strengthening the company’s inventory control management and production engineering. The market position is strengthened once we have analyzed the data well and have a hold on the fluctuations in demand side and supply side which ultimately results in maximizing profit. Hence, demand analysis and forecasting hold a very important place for business managers at various functional and corporate levels.
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Profit Management
The vision and mission of the firm ultimately looks on its primary measure and that is profit. Firms are operated and run as long as the going concern to earn long term profit which comes at a cost, called as risk-taking. The risk appetite varies from company to company and from industry to industry. Appropriate planning and measuring profit is the most important and challenging area of managerial economics. Usage of various theories of microeconomics and macroeconomics helps in this regard.
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Capital Management
This attribute involves planning and controlling of various expenditures in the company such as HR, operational, marketing and analytics expenditures. There are certain problems and down comings with respect to capital investments that involve a considerable amount of time and labour. Return on investment, rate of return and cost of capital are some of the concerns that are tackled by managerial economics.
What are the various steps involved in managerial economic decision making?
- Define the problem or a set of problems.
- Narrow it down to a single problem statement that is in line with the objectives of the company.
- Find the alternative approach to the problem solution.
- Analyze the historical data and come up with predicted results and consequences of the different approaches and solution suggested.
- Implement the best possible approach that is cost-effective and does not affect the market share of the company.
What are some of the most important topics for managerial economics?
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Cost and production analysis
The various production capacities and methodologies can be analyzed empirically in terms of production functions or cost functions. These functions help in the estimation of the parameters of attributes related to providing valuable insights into the technology and advancement of firms and industries. The fundamental and most frequently asked questions here are the questions relating to technology, which are:
(1) Whether production processes that are decreasing, constant, or increasing are in line with the objective of the economy of scale.
(2) How technological progress affects the different parameters involving the functions of production processes; and
(3) at what rate technological progress has occurred. Estimation and interpretation of the estimates is difficult because observations on inputs, outputs, and costs reflect not only the technological infrastructure of the company but also the managerial economic decisions and strategies made by the management of production units and supply and inventory units.
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Project management
Project is an important part for organizations and individuals to achieve their business and non-business objectives with affirmative efficiency and build trust among the clients or consumers. It is because of different kind of projects from different spectrum of clientele network that an organization is motivated to make changes to its structure or operational cycles. These changes need tactical strategies and managerial decision which are decisive and robust in nature. The different types of projects that a company will be working on:Temporary- This type of projects have a limited time frame which means it has a finite start and a finite end. It works on a closed-loop system. Major changes in the organization are not necessary for this type of projects.Strong Deliverable(s). Deliverables refer to a service or products that the company will offer to its clients before the commencement or during the project process. These deliverables are designed to address problems statements and analyze it before taking the project head-on.
Progressive Elaboration. These type of projects are long term ones that require major changes with the internal as well as external environment of the organization. Forming strategic partnerships, changes in operational cycles, modifying supply and distribution channels etc., are some of the keynotes in these types of projects. They are of a time frame of more than 10 years which provides a major revenue stream for the organization.
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Pricing decisions, policies and practice
Managers are typically expected to start setting price limits (with an upper limit and lower limit) during the development stage of the product or service life cycle as part of a strategic manoeuvre to avoid loss-making products due to bad marketing and pricing strategies. The main objective here is to gain market share and have profitable cycles every other quarter. These pricing strategies benefit organisations to maintain costs and reduce prices. It also helps in eliminating products or services that cannot be generated cost-effectively. Through systematic pricing policies and strategies, companies can reap greater profits and increase or defend their market shares. Setting prices is one of the principal tasks of marketing and finance managers in that the price of a product or service often plays a significant role in that product’s or service’s success, not to mention in a company’s profitability.
Some of the other aspects of managerial economics, which are relatively less important than ones mentioned above are:
- Analysis of the business environment.
- Business development principals
- Basics of microeconomics and macroeconomics.
- Allied disciplines.
- Profit management
- Demand analysis and forecasting.
- Supply chain analytics
What are some of the most popular textbooks for academic reference and studies in managerial economics?
- Craig Petersen H., W. Cris Lewis, Managerial Economics, Prentice-Hall of India, New Delhi, 2003.
- Dominick Salvatore, Theory and Problems of Micro Economic Theory,
- Schaum’s outline series, McGraw-Hill, Inc., 1992. Dewet K.K., Modern Economic Theory, Shyam Lal Charitable Trust, S. Chand and Company Ltd., New Delhi, 2005.
- Mote V.L., Samuel Paul and G.S. Gupta, Managerial Economics Concepts and Cases, Tata McGraw Hill Publishing Company Ltd., New Delhi, 2001.
- Koutsoyiannis. A Modern Micro Economics, Macmillan Publishers Ltd., London, 1979.
- A. Koutsoyiannis, Modern Micro Economics, Macmillan Publishers Ltd., London, 1979.
- Managerial Economics, Cengage Learning, Newdelhi, 2005 Geetika, Ghosh & Choudhury,
- Managerial Economics, Tata Mcgrawhill, Newdelhi, 2011Barla C.S., Managerial Economics, National Publishing House, Raipur, 2000.
- Morris Dobb, “A Note on the so-called Degree of Capital-Intensity of Investment in Underdeveloped Countries”, in On Economic Theory and Socialism, London, 1955.
- Yogesh Maheswari, Managerial Economics, Phi Learning,
New Delhi, 2005 Gupta G.S.,
Academics textbooks are not the only way you can learn managerial economics. There are various non-fictional economic books in the market that provide a real-world understanding of the economic principals and theories. Some of them are:
- The undercover economist- Book by Tim Harford
- Animal spirits- Book by Akerlof and Shiller
- Freakonomics- Book by Stephen J. Dubner and Steven Levitt
- The Wealth of Nations- Book by Adam Smith
- History of economic thought- Book by Eric Roll, Baron Roll of Ipsden
- Capital in the Twenty-First Century-Book by Thomas Piketty
- Why Nations Fail- Book by Daron Acemoglu and James A. Robinson
- Poor Economics-Book by Abhijit Banerjee and Esther Duflo
- Naked Economics: Undressing the Dismal Science- Book by Charles Wheelan
- Misbehaving: The Making of Behavioral Economics-Book by Richard Thaler
Managerial Economics Study Material for MBA in Pdf Download
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MBA Managerial Economics Syllabus in Detailed Structure
Unit – I
General Foundations of Managerial Economics – Economic Approach – Circular Flow of Activity – Nature of the Firm – Objectives of Firms – Demand Analysis and Estimation – Individual, Market and Firm demand – Determinants of demand – Elasticity measures and Business Decision Making – Demand Forecasting.
Unit-II
Law of Variable Proportions – Theory of the Firm – Production
Functions in the Short and Long Run – Cost Functions Determinants of Costs – Cost Forecasting – Short Run and Long Run Costs –Type of Costs – Analysis of Risk and Uncertainty.
Unit-III
Product Markets -Determination Under Different Markets – Market Structure – Perfect Competition – Monopoly – Monopolistic Competition – Duopoly – Oligopoly – Pricing and Employment of Inputs Under Different Market Structures – Price Discrimination – Degrees of Price Discrimination.
Unit-IV
Introduction to National Income – National Income Concepts – Models of National Income Determination – Economic Indicators – Technology and Employment – Issues and Challenges – Business Cycles – Phases – Management of Cyclical Fluctuations – Fiscal and Monetary Policies.
Unit – V
Macro Economic Environment – Economic Transition in India – A
quick Review – Liberalization, Privatization and Globalization – Business and Government – Public-Private Participation (PPP) – Industrial Finance – Foreign Direct Investment(FDIs).
MBA Managerial Economics Important Questions
MBA managerial economics exam questions and answers are Given below,
- Distinguish between micro economics, macro economics and
managerial economics. - What is managerial economics? Why does study managerial economics?
- Describe the circular flow of economic activity of India.
- Discuss the nature of the firm.
- List the major objectives of the firm.
- How does managerial economics relate to other disciplines for propounding its theories?
- Identify the areas of decision making where managerial economics prescribes specific solutions to business problems.
- Discuss the role and responsibilities of a managerial economist.
- Define demand.
- State the law of demand.
- Prepare a demanding schedule for an apple i-pad in the Indian market.
- Distinguish between the shift in demand and a movement along a demand curve.
- List the factors which determine market demand for a commodity of your choice.
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FAQs on Managerial Economics Notes
1. Where to Download Managerial Economics Notes PDF?
You can download it from this page and kick start your preparation right away to have a better understanding of the subject.
2. What are MBA Managerial Economics Recommended Books?
Some Popular Textbooks for reference and studies in Managerial Economics are given.
1. Craig Petersen H., W. Cris Lewis, Managerial Economics, Prentice-Hall of India, New Delhi, 2003.
2. Dominick Salvatore, Theory and Problems of Micro Economic Theory,
3. Schaum’s outline series, McGraw-Hill, Inc., 1992. Dewet K.K., Modern Economic Theory, Shyam Lal Charitable Trust, S. Chand and Company Ltd., New Delhi, 2005.
3. Where can I get Managerial Economics Study Material PDF Free Download?
You can access the quick links for Managerial Economics Study Material and download them free of cost at a single tap.