Managerial Economics

CAPSULE STATEMENT

Managerial Economics is a key branch of economics at graduate level. This is basically applied microeconomics though it uses macroeconomic variables also. The subject matter deals with the economic theory and its application in business management. The course provides a unifying theme of managerial decision making around the theory of the firm. It examines the process whereby a firm can reach optimal managerial decisions in the face of constraints in today‟s dynamic market. It covers a variety of topics such as demand Analysis, Estimation and forecasting, market structure, production and cost analysis, pricing practices, economic optimization and risk analysis. A strong grasp of the principles that govern the behavior of economic agents (firms, individuals and government) is a vital managerial talent.

The course provides practical guidelines to students to analyze in depth the managerial decisions in the market. It enables students to comprehend the complexity, risk element, and key success in business.

A sound background of mathematical and statistical tools makes the understanding of the subject matter more interesting and easier.

LEARNING OUTCOMES

After completing this course participants must be able to:

  1. Understand the key role of managers in decision making
  2. Analyze firm‟s decision making process
  3. Examine how a firm achieves its aims and objectives most efficiently
  4. Understand functioning of different markets
  5. Meet the challenges of the risky businesses
  6. Formulate price strategies in different markets
  7. Become confident in making managerial decisions
CALENDAR ACTIVITIES Session Topic (s)
1, 2  

 The nature and scope of Managerial Economics.

 Management Problem

 Effective Management

 Theory of firm

 The objective of the Firm

 Constrains faced by a firm

 Business vs. Economic profit

 Theories of Economic profit

 

3, 4 Advanced Demand Analysis

 The Market Demand Function

 Total and Marginal Revenue

 Sensitivity analysis

 Computation of Price, Income and Cross price Elasticity of Demand by two Methods

 Uses and Application of Price, Income and Cross-Price Elasticity of demand

 Some other Demand Elasticity

 

5 Advanced Demand Analysis

 Price elasticity, Marginal Revenue and Total Revenue

 Optimal Pricing Policy under given price elasticity

 

6 Demand estimation by Regression Analysis

 Simple Linear and Multiple Linear Regression Models

 Significance of estimated coefficients and model

 Use of R2

 

7 Demand Forecasting

 Quantitative Methods for Forecasting

 Best Forecasts

 Forecasting power of a Regression Model

 

8 Mid-Term Exam
9, 10 Economic Optimization

 Mathematical tools for derivatives

 Unconstrained vs. Constrained Optimization

 The substitution vs. the Lagrange Methods of Optimization

 

11, 12 Production Analysis

 Production Function

 Total, Marginal and average Products in case of single and two variable inputs

 Marginal Revenue Product and Optimal Employment of Inputs

 Returns to scale vs. Returns to factor

 

13 Cost Analysis

 Explicit and Implicit Costs

 Incremental and Sunk Costs

 Short-Run vs. Long-Run Costs

 Economies of Scale and Economies of Scope

 Learning Curves

 Breakeven Analysis

 Degree of Operating Leverage

 

14 Pricing Practices

 Markup Pricing and profit maximization

 Mark up on costs and price

 Optimal markup on price and cost

 Price discrimination

 

15 Risk Analysis

 Economics Risk vs. Uncertainty

 Various types of risk

 Expected Profit of a Project

 Absolute vs. Relative Risk

 Beta as Measure of Risk

 Managerial Applications

 

16 End-Term Exam

TEXT BOOK:

  1. Mark Hirschey (2009), “Managerial Economics”, Thomson: South Western

ADDITIONAL READINGS:

  1. William F. Samuelson, Stephen G. Marks (2003), Managerial Economics Fourth Edition, Wiley.
  2. Lila J. Truett and Dale B. Truett (19989), Managerial Economics: Analysis, Problems, Cases , International Thomson Publishing
  3. Micheal Baye (2002), “Managerial Economics and Business Strategy”, Irvin Publishers.
  4. Dominick Salvatore (latest edition), “Managerial Economics in a Global Economy”, McGraw Hill.
  5. Petersen, Lewis and Jain (2006), “Managerial Economics” Pearson: Education.
  6. Abdul R. Butt (2006), “Least Squares Estimation of Econometric Models”, (Revised Edition), National Book Foundation, Pakistan.

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