CHAPTER 1: WHAT IS MANAGERIAL ECONOMICS?
 whatever decision you'll choose, there is always
MANAGERIAL ECONOMICS
 a combination of microeconomics and macroeconomics
used for business decision-making.
 seeks to establish rules and principles to facilitate the
attainment of the designed economic goals of
management.
 answer the questions 'what to produce', 'how to
produce', and 'for whom it should be produced.'
 widely used in org to deal with different business
issues.
 provides an essential tool for determining the business
goals and targets.
5 Resources of Decision-making
1. Selection of product or service
2. Choice of production method and resource combination
3. Decision
4. Promotional strategy and activities
5. Selection of the location to where you'll produce the
product
PRINCIPLES OF MANAGERIAL ECONOMICS (N.
George Mankiw)
PRINCIPLES OF HOW PEOPLE MAKE DECISIONS  enough to produce goods and services for the growth of
1. People Face Tradeoffs - people have to make choices
where they have to select among the various options
available.
 Tradeoffs - exchange/balance factor
2. Opportunity Cost - the value of what you have given up
in order to choose something else. 
a cost.
3. Rational people think at the margin - people think abt
the profit they will earn before investing on a particular
project or person.
4. People respond to incentives - decisions depends upon
the incentives they'll get. 
 Incentives - this will motivate people
PRINCIPLES OF HOW PEOPLE INTERACT
 Communication and market affect business operations.
5. Trade can make everyone better off - it is a chance to
promote and discover our product - trade between
countries.
6. Markets are usually a good way to organize economic
activity - market is the medium of consumers and the
producers’ interaction.
7. Governments can sometimes improve market outcomes
- government intervenes business operations at the time
of unfavorable market conditions or for the welfare of
society.
PRINCIPLES OF HOW ECONOMY WORKS AS A WHOLE
 the role of economy in the functioning of an org.
8. A country's standard of living depends on it's ability to
produce goods and services - the org must be efficient
the economy.
9. Prices rise when the government prints too much
money - inflation takes place
 ↑ money available, ↑ spending capacity
 10. Society faces a short-run tradeoff between inflation and
unemployment - the government brings in various
economic policies into action to reduce unemployment.
SCOPE OF MANAGERIAL ECONOMICS
1. Resource Allocation - prioritize the demand (ex. since
pandemic, prioritize producing masks and alcohols than
lipsticks)
2. Inventory and Queuing Problem
 Inventory Problem - dahil sa marami ka
magproduce, marami ang naiistock na goods.
 Queuing Problem - dahil sa pandemic, bumaba
ang sales kaya nagbabawas ng tao sa
production.
3. Pricing Problem - correct pricing is a competitive
advantage, people will buy if the price of your product
meets its value.
4. Investment Problems – forward planning involves
investment problems, problems of allocating the scarce
resources over time.
 may pera ka pero hindi mo alam kung saan mo
gagamitin or kung saan ka mag iinvest.
Profit Management
Economists define profit as the excess of revenue over
cost.
Why do profits vary among firms?
a. Frictional Profit Theory – markets are
sometimes in disequilibrium because of
unanticipated changes in demand or cost
conditions.
 may imbalance dahil sa biglaang changes
Ex. Dahil sa pandemic, ‘yung production programming
ng San Miguel, from liqiour nagproduce na rin sila ng
alcohol dahil iyon ang mas kailangan ng tao ngayong
pandemic.
b. Monopoly Profit Theory – they earned above
normal profit.
Ex. Aurelco – dahil sila lang ang may-ari ng bigger
share ng power provider.
c. Innovation Profit Theory - s above-normal
profits that arise following successful invention
or modernization.
Ex. McDonald’s, Apple, IBM
d. Compensatory Profit Theory
– caccompensate ‘yung customers’ needs kaya
nagggain ‘yung company ng above normal.
Nammaintain ‘yung business operation
Role of Profits
In the economy - above-normal profits serve as
a valuable signal that firm or industry output
should be increased. Below-normal profits
provide a signal for contraction and exit.
Economic profits are one of the most important
factors affecting the allocation of scarce
economic resources.
In the society - businesses exist because they
are useful and they survive because of public
consent, to serve its social needs. The public
dictates the success of a business.
 Central Problems of Economy
a. Recession – economic decline which trade and
economic activities decline due to pandemic,
war, etc. (biglang pagbaba o paghina ng
ekonomiya)
b. Inflation – increase in prices creates uncertainty,
it reduces the competitiveness of a country
(pagtaas ng value ng mga goods and services)
c. Unemployment – people who are available to
word and currently seeking for work. (maraming
grumagraduate taon taon kaya maraming tao
ang nangingibam bansa upang maghanap ng
trabaho)
d. Stagnation – slow growth caused by population
growth, fewer people choose to word of labor
productivity is too slow.
CHAPTER 2: KEY MEASUREMENT AND
RELATIONSHIPS
Revenue, Cost and Profit
Revenue – total monetary value of goods and services
Cost - Expenses incurred to generate revenue over a period of
time
 Variable cost – expenses related to the volume of sales
like cost of raw materials to make an item. (it changes
as the volume of the sales changes)
 Fixed cost – the cost of a machine to produce an item.
(it remains the same regardless of the volume of sales.)
Profit = Revenue – cost
ECONOMIC PROFIT VS. ACCOUNTING PROFIT
Accounting profit – net income earned during an accounting
year.
Accounting Profit = Gross Revenue – Explicit Costs
(deductible expenses)
Economic Profit – surplus remaining after deduction of total
costs from total revenue.
Economic cost = Total Revenue – (Explicit costs + implicit
costs)
Revenue, Cost and Profit Functions
Cost Functions – total cost of producing output.
Linear Cost Function: C(x) = F +V𝒙 C = Total cost
where: F = Fixed cost, V = Variable cost Per unit, 𝒙 = No of
units produced and sold
Revenue Function: R(x) = p(x)
Marginal Cost (MC)
- additional cost of producing an additional unit
of output. It is the change in total cost that arises
when the quantity produced changes by one
unit.
Marginal Revenue (MR)
- the change in total revenue from increasing
quantity by one unit. It is the additional revenue
that will be generated by increasing product
sales by one unit.
Profit Maximization
- an assumption that firms seek to maximize
profits. A firm can maximize profits if it
produces an output where marginal revenue
(MR) = marginal cost (MC).
CHAPTER 3: DEMAND ANALYSIS
Demand and supply are the heart of any business activity.
DEMAND
 based on needs and wants of the people, it refers to the
amount of products and services that cinsumers are
willing to purchase at their price.
Theory of the Consumer
 States that a consumer plans his purchases, the timing,
borrowing and saving to maximize the satisfaction he
will experience from the consumption of goods and
services.
 Studies how people decide to their money based on
their preference and budget.
 This helps the manufacturers to assume which product
they should produce.
Basic assumptions of Human Behavior:
1. Utility maximization - people are making calculated
decisions in purchasing products, they prefer goods that
will benefit their satisfaction.
2. Nonsatiation – people are seldom satisfied with one trip
to the stores as they always want to consume.
3. Decreasing Marginal Utility - people lose satisfaction in
a product the more they consume it
Advantages of Consumer Theory
          In economics, understanding the people’s preference and
income is important because it has a big impact on the demand,
specifically the demand curve wherein the relationship of price
and the quantity of demand for a specific period affects the
shape of the economy.
Consumer Spending - drives the large chunk of GDP in the
coutry, if consumers cut down on 
purchases, demand of goods might fall thereby affect business
profits, labor market, investment, etc.
Law of Demand
 When prices rise, the quantity of demand falls.
 When prices decreases, demand will go up.
Demand Curve - shows the relationship of price and quantity
demanded.
Determinants of Demand
 People base their purchasing decisions on prices.
Elastic Demand - if the demand corresponds with the price.
Inelastic Demand - when demand does not change regardless of
the price.
Determinants of the Demand Curve:
1. Income - if income increases, demand will also rise.
 2. Consumer Preferences - their preferences will drive the
demand.
3. Number of buyers - the more buyers lead to an increase
in demand; fewer buyers lead to decrease.
4. Price of related goods - pricesof goods increases its cost
of using the product you demand. (They look for
cheaper alternatives)
5. Expectation - when consumers expect that the value of
a certain product will increase, the demand increases.
Market Demand Functions
 Total quantities demanded by consumers at each price. 
 To obtain, get the total of all quantities demanded by
consumers at the same price.
Market Demand Curve
 the sum of all individual demand curves of all
consumers in the selling of goods.
CHAPTER 4:
COST AND PRODUCTION
What is Cost of Production?
Cost is the amount of money charged for a product by the
seller based on the production of a good or service. It may
include labor, raw materials, overhead, supplies, etc.
- The cost of production is the total cost of a
business in producing a specific quantity of
product or service.
Different types of cost production
1. Fixed costs - – expenses that do not change with
the amount of output produced. The costs will
remain unchanged even when there is no
production.
Ex. Monthly rent, salaries of employees
2. Variable costs – costs that changes in the level
of production, it increases as volume of
production goes up and decreases as production
volume goes down. If there is no production
volume, no variable costs are incurred.
3. Total costs - – includes both variable and fixed
costs, it takes all the costs in the production
process.
4. Average costs - the total cost of production
divided by the number of units produced. The
goal of the company is to minimize the average
cost per unit so that it can increase the profit
margin without increasing costs.
5. Marginal costs - cost of producing an additional
unit of output. It is mainly affected by changes
in variable costs.
 Average Cost Per Unit = no change in the average cost of each
¿ costs+ variable costs unit.
Total no . of items produced  kapag nagdoble and input,
magdodoble rin ang output –
kung ilan ang tinaas ng input,
Short run and long run costs ganon din ang itataas ng output.
3. Diminishing returns to scale (DRS) -
Short run costs have no fixed factors of production
refers to production for which the
Ex. Employee wages, costs of raw materials average costs of output increase as the
level of production increases.

Long run costs have fixed factors and variables

that impact production
Ex. changing the quantity of production, decreasing
or expanding a company, and entering or leaving a
market.

Economies and Diseconomies of Scale

3 stages in the returns to scale:
1. Increasing returns to scale (IRS) - when
the cost of producing an additional unit
of output decreases as the volume of its
production increases.
 Kapag tumaas ang input, tatas
din ang output
2. Constant returns to scale (CRS) - refers
to production process where an increase
in the number of units produced causes