NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

FACULTY OF COMMERCE

P.O. Box AC 939 Ascot. Bulawayo. Zimbabwe 09-280371

Cnr. Gwanda Road / Cecil Avenue 09-282842
www.nust.ac.zw

Managerial Economics (GMB 5163)

Lecturer: Mr F. Chinjova

COURSE DESCRIPTION AND OBJECTIVES

Managerial economics is a discipline that borrows from Management Sciences and

Economics. It makes use of analytical tools of analyzing, explaining and solving
organizational problems in business. The objective of the course is to help students
develop analytical economic approach to decision making using mainly principles of
microeconomics and quantitative methods. At the end of this course students should be
able to make optimal business decisions and critically evaluate business alternatives
that may not necessarily optimize profits and other objectives of the firm.

COURSE OUTLINE

TOPICS

Introduction
 Subject matter of Managerial Economics, important terminology
 Methodology of Managerial Economics, Scope and links with other disciplines.
 The allocative and signal roles of the Price mechanism.

Business objectives and models of the firm

 Accounting vs Economic profits
 The neoclassical model
 Managerial discretion models
 The behavioral model of the firm
Risk and uncertainty in decision- making
 Alternative states of information
 Techniques for decision making under uncertainty and risky conditions
 Techniques for coping with uncertainty

Demand and supply

 Methods of estimating demand and supply
 Forecasting demand
Elasticity of demand and supply
 Price elasticity of demand : estimation and use
  Income elasticity of demand : estimation and use
 Cross price elasticity of demand: estimation and use
 Arc- elasticity of demand
 Elasticity of supply
Consumer behavior
 Theories of consumer behavior
 The Cardinal Utility Approach
 The Ordinal Utility Approaches
o Indifference curve analysis
o Revealed preference theory / hypothesis

The Theory of production

 The general production function: technical efficiency and inefficiency
 The law of variable proportions in production
 The Cobb-Douglass production function and returns to scale
 Other production functions

The Theory of costs in Economics and Business

 Short-run and long-run costs
 The classical cost function and empirical evidence
 X-inefficiency
 The learning curve
 The growth of the firm: economies and diseconomies of scale
 Industrial concentration: external economies of scale
Market Structures
 Perfect competition and characteristics
 Monopolistic competition
 Oligopoly market structure
 Oligopoly models
 Game theory and strategic dependence
 Monopoly and characteristics
 Monopoly and Price Discrimination

Pricing Decisions
 Pricing and market structures
 Pricing in practice
 Two Part Tariff
 Bundling vs Tying
 Transfer pricing
 Pricing for public enterprises
Investment decisions in Business and Society
 Net Present Value (NPV)
 Internal Rate Of Return (IRR)
 Payback period
 Cost-Benefit –Analysis (CBA)
 Shadow Pricing and externalities in public sector project appraisal
RECOMMENDED TEXTS

Chiang A.C (1984) : Fundamental Methods of Mathematical Economics, 3rd Edition.

Davies H. (1991) : Managerial Economics for Business and Management

Accounting, Pitman, London, UK.

Hill S. (1989) : Managerial Economics : The Analysis of Business Decisions,

MacMillan, London, UK.

Koutsoyiannis A .(1994) : Modern Microeconomics, 2nd Edition, MacMillan, London,

UK.

Webb S. C. (1976) : Managerial Economics, Houghton Mifflin Company, Boston, USA.

Journal Articles

Baumol W. “What can economic theory contribute to managerial economics?”

American Economic Review, 51 (2) May 1961 pp142-146.

Bourdon E. “Pricing Strategies in highly competitive markets”, Management

Decisions, 30 No14,1992, pp57-64.

Earl P.E. “Behavioral Analysis of demand analysis”, Journal of Economic Studies, 13

No 3,pp20-37.

Harrison E. F. “Interdisciplinary models of decision making”, Management decision

13, No 8, pp 27-33.

Hirshleifer J. “ Investment decision under uncertainty, choice theoretic approach”,

Quaterly Journal of Economics, November 1965, pp509-536.

Longman J.R. and Bakash N. “IRR, NPV and Payback period and their relative
performance in common capital budgetary decision procedures for dealing with
risk”, Engineering Economist, 39, Fall, 1993, pp17-47.

Wolinsky A. “Price as signals of product quality”, Review of Economic studies, 50,

October 1983, pp647-658.