Philippine School of Business Administration, Quezon City

1029 Aurora Boulevard Extension, Quezon City

A FINAL OUTPUT IN
MANAGERIAL ECONOMICS

A partial fulfillment of the requirements in the

Subject AEC 101

Submitted by:
BASA, MIKHA ELLA G.

Section:
BM1-A1

Submitted to:
Prof. JOHNLEE L. BOTOR
Subject Instructor

January 2023

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 TABLE OF CONTENTS

I. KEY TAKEAWAYS AND IMPORTANCE OF THE SUBJECT MATTER

Topic 1 ECONOMIC OPTIMIZATION

1.1 Economic Optimization

1.2 Economic Optimization Process
1.3 Tables, Spreadsheets, Graphs, Charts and Equations
1.4 Cost Relations and Profit Relations
1.5 Incremental Concepts in Economic Analysis

Topic 2 DEMAND AND SUPPLY

2.1 Relationship of Demand and Supply

2.2 Basis of Demand
2.3 Market Demand Function and Demand Curve
2.4 Industry Demand and Company Demand
2.5 The Concept of Supply and Supply Curve
2.6 Market Equilibrium
2.7 The Market Forces of Supply and Demand

Topic 3 DEMAND ESTIMATION AND DEMAND FORECASTING

3.1 Demand Estimation and Demand Forecasting

3.2 Demand Forecasting Process
3.3 Determinants of Demand Forecasting
3.4 Methods of Demand Forecasting
3.5 Demand Forecasting for a New Product

Topic 4 PRODUCTION ANALYSIS AND COMPENSATION POLICY

4.1 Production Analysis and Compensation Policy

4.2 Concept Production and Production Function
4.3 The Law of Diminishing Returns

Topic 5 COST ANALYSIS AND COST MANAGEMENT

5.1 Cost Analysis

5.2 Cost Control and Cost Management
5.3 Cost Estimation

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II. USEFULNESS OF THE ACQUIRED LEARNINGS

A. To you as a student
B. To you as future Accountant

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 Chapter I
“Key Takeaways and Importance of Subject Matter”

Introduction
This chapter is the summary of the entire subject’s main and important points within the
given syllabus. It aims to provide the reader of the maximum clarity and understanding
of the author to Managerial Economics.

T-1. ECONOMIC OPTIMIZATION

1.1 Economic Optimization
Seeking the ultimate solution to an issue is the approach to creating optimal
strategic choices. There isn't any deciding difficulty if there is merely yet another
feasible answer. The solution that leads to a conclusion which is the most
harmonious with organizational goals is the optimal approach while several
options are accessible. Economic optimization's objective and management
finance' central emphasis seems to be the act of creating the optimum
management decisions.

1.2 Economic Optimization Process

A. Optimal Decisions
The management's mastery of the probabilistic approach is just as crucial
as the economic study. A manager must evaluate the many expenses incurred
by ambiguity, from manufacturing and advertising to budgetary control. The
expert examines how sparse and frequently flawed data systems affect a
business's ability to make the strategic choices possible. The primary driving
force behind this work is the requirement to comprehend how risk functions in
quantified methodologies in both managerial and economic matters.
B. Maximizing the Value of the Firm
The business's worth is determined by assessing the amount of the
company's cost flows and profits over an amount of years into the future.
Earnings from the foreseeable long run should be reduced since an economy of
income in a prospective year would be valuable less than a profit now. As a
result, the current value among all anticipated annual earnings of the company
establishes the worth of both the business or investor's affluence.

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 Moreover, executives who emphasize one‘s own aspirations or
functionality over the company's earnings or worth all seem to be probable to be
dismissed by the business's equity investors. Conversely, if leaders need not
place emphasis on profitable investments, those who do will indeed be acquired
by another organization that recognizes its profitability.
C. Demand and Total Revenue
Tackled the concept of demand, price and revenue.
- Demand is the key factor driving the market and competence to
acquire a merchandise or necessities in economic concepts. Hardly a
company might possibly make something if there wasn't demand.
- Price is the established worth of a commodity or service that
seems to be the outcome of a sophisticated sequence of estimations,
inquiry and insight, and contingency capacity.
- Revenue is defined as the monetary generated by consistent sales
actions and thus is figured by multiplying the overall sales value by the
quantity of products marketed.
- Law of Demand links among the amount urged and the cost, this
economic concept defines a concept you understand naturally. Customers
purchase less when prices rise.
- Law of Supply is a vital economic principle. It asserts that a rise
within the cost of a product or service causes a boost throughout the
production of those products and services.
- Theory of Price is the analysis about how monetary factors
including supply and demand alter industry price levels for commodities
and assistance.

1.3 Tables, Spreadsheets, Graphs, Charts and Equations

Statements could only evoke so much information. Tables, charts, graphs,
spreadsheets and equations help to clarify one's interpretations and prevent
unnecessary ambiguity and misapprehensions. Such electronic platforms enable
you to have a quick and easy way to convey information in an extremely succinct
sense. In addition to that, although if executed effectively, this would render one's
demonstration take a gander quite 'proficient,' obtaining credibility not merely to
oneself as well as to the original data.

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A. Tables
A tool enables for the keynote with even massive quantities of information
in an appealing, incredibly simple, and sorted format. The information is divided
into multiple rows. Seeing as tables are simple to establish and interpret, it thus
is among the perils predominant kinds of information demonstration.
B. Spreadsheets
An electronic platform established for accessible numerical inputs and
easy calculations. various formulas are provided in convenience of user inputting
data for organized presentation or reports.
C. Graphs and Graphs
Graphs and standardize facts and figures for easy understanding while
retaining depth. Nevertheless, economics graphs and charts such as bar graph,
pie chart, line chart and even tabular graph are indeed useful since they depict
the links and interconnection among different indicators or notions in economic
concepts.
D. Equations
Numerous formulas are provided within this topic, including linear function
and total revenue. An equation aids the calculation within economists data
analysis in the business, this provides the approximate numeric solution and
figures sorted and acquired in any business system.

1.4 Cost Relations and Profit Relations

A. Cost Relations
These aspects in economics are divided into two categories which is
“Short-Term Cost Function And Long-Term Cost Function” where it works
with the usage of operation of fixed costs (short term) or variable costs (long
term). Whereas, the term “Total Cost ((TC)” refines the overall cost out of fixed
and variable cost incurred by the company’s basis operation. “Marginal Revenue
(MR)” is a monetary calculation used by businesses to determine profits for each
and every extra output sold in the market. While, “Average Cost (AC)” is the
standard calculation for a unit of product manufactured, in which it provides the
breakdown of the overall value per unit of goods produced.
B. Profit Relations
In economics, firms utilize and enhance its profit maximization to ensure
the fullest of its profitability in nature, thus also to foresee the side by side
collation of its income and revenues. “Total Profit” is calculated by subtracting

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 the overall total cost to its overall total revenue. “Marginal Profit” is calculated
by subtracting its marginal revenue to its marginal cost. Thus, maximizing profit
will gladly ensure business prosperity within the long run.

1.5 Incremental Concepts in Economic Analysis

A. Marginal Concept
Marginal concepts in economics are linked to a particular variation in the
amount above of a commodity, although contrasted to a certain premise of all
relevance of that category of particular commodity or of a certain number of units.
The term "marginal" is quite essential in managerial economics because it simply
considers the extension entity, which can aid in figuring out the ideal profit
margin.
B. Incremental Concept
This type of economic analysis is quite similar to marginal concept as it
also intends to examine the business collation of the overall costs, income and
revenues. Incremental rationalizations have two basic components: incremental
change and incremental profit. Incremental change is a rationale from a company
’s decision which triggered changes, and incremental profit is yet another
modification in total profit caused by a specific judgment call. Thus, incremental
analysis assists businesses in narrowing the vulnerability in profit maximization
well within short-term business function.

T-2. DEMAND AND SUPPLY

2.1 Relationship of Demand and Supply
The marketing concept of demand describes the buyer's urge to acquire
the commodity. While, a basic economic notion called supply indicates the
quantity of a particular goods or services that is made supplied to purchasers.
Moreover, the value of a commodity will always depend on the level of demand
and supply within the market. So, if the market value would rise due to a supply
shortage and then a rising degree of demand. The market value will decline in
the event of a vast production and weak market desire or consumer interest.

2.2 Basis of Demand

The practicality of a given commodity to fulfill a desire or a requirement
and the customer's financial capacity seem to be the two main determinants of

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demand. In essence, a true market exists when a person's inclination and
purchasing power support their motivation to gratify their wants.
A. Direct Demand
Definitely comes from its name “Direct” which is equivalently utilized for
direct purchase and direct consumption of consumers. The preference of
consumers are dependent on their distinct reference for a direct need, want,
demanded commodity. Direct demand is the term used to describe whenever
individuals proactively request commodities to fulfill personal demands.
B. Derived Demand
It is the opposite of direct demand as this concept inquires the demand of
commodity producers to implement item or service production within the market.
Derived demand would be the term for the consumption for commodities that
arises as a result of rapid demand expansion for similar commodities.

2.3 Market Demand Function and Demand Curve

A. Market Demand Function
The term "market demand function" describes the interaction involving
customers demands and the variables influencing market needs. Additionally,
most aspects driving consumer consumption have an impact on the overall
market interest. Moreover, it is regulated either by volume and complexion of the
inhabitants, the period seasons, the climate, and the revenue distribution.
B. Determinants of Demand
There are wide range of determinants of demand in the market, however,
within the given syllabus there only 6 given determinants and these are; (1) Price
of Good itself, (2) Consumers’ Income, (3) Consumers’ expectation of Future
Prices, (4) Prices of Related Commodities, (5) Consumers’ Taste and
Preferences, and (6) Population. Thus, changes in consumers preferences and
patterns may vary thus contributing within its demand in the market.
C. Demand Curve
In economics, a demand curve is a visual illustration of the correlation
among a product's value and the amount that is wanted. The figure is built with
the amount sought here on the horizontal plane and value upon that vertical
plane.

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2.4 Industry Demand and Company Demand
All participants and entities who participate in the manufacturing of many
other commodities and offerings are considered to be part of the industrial
demand for those commodities. Company demand, on the other hand, refers to
the corporate's expected proportion of market demand at varying tiers of
business promotional campaigns over a specific time frame.

2.5 The Concept of Supply

A. Supply Function
The link amongst the volume requested of a commodity or services, its
value, as well as other relevant elements like costs of production, the pricing of
complementary goods, respectively. is mathematically expressed as a supply
function.
B. Supply Curve
An illustration of the relationship between a variation in the market value of
a commodity in the market and the volume that a seller provides is called a
supply curve. The law of supply is demonstrated by the supply curve. According
to the law of supply, if a good's value increases while all other factors stay
constant, more commodities would be produced.
C. Determinants of Supply
Within the given material, it can be seen that there is a wide range of
determinants of supply in the market. These are; (1) Change in technology, (2)
Cost of inputs used, (3) Expectation of future price, (4) Change in the price of
related goods, (5) Government regulation and taxes, (6) Government subsidies,
(7) Number of firms in the market. In this matter, businesses can easily gather
the data on the important demands that the consumer requires in the market.

2.6 Market Equilibrium

When the industry's demand and supply factors are balanced, a sector is
said to be in harmony. Whenever a commodity or service's demand and
availability are balanced inside the marketplace, its price is said to be at balance.
By displaying the total value and the amount where the market's supply and
demand curves converge, we may visualize a market in equilibrium.

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 2.7 The Market Forces of Supply and Demand
A. Surplus
Whenever the present value of a product is less than what customers are
prepared to pay, there is a consumer surplus in an economy. This results in
excessive buying, which lowers the supply of the goods. Many times, a surplus
leads certain manufacturers to reduce their pricing. As a result, competing
businesses are forced to reduce their own offerings, creating increased demand.
This propels the market closer to a state of volume and price equilibrium.
B. Shortage
This refers to a circumstance when there is overabundance of sales
volume compared to the amount of supply readily available on the market. This
leads to an unbalanced marketplace. A manufacturer's incapacity to create and
distribute commodities and operations, catastrophic events, and depressed
wages brought on by changing consumer and commercial patterns are among
other factors that contribute to scarcity.

T-3. DEMAND ESTIMATION AND DEMAND FORECASTING

3.1 Demand Estimation and Demand Forecasting
Smart company judgment is virtually invariably grounded in reality.
Regardless of whether a resolution finally arrives up to their finest accurate
assessment, credible evidence offers a sense of impartiality.
A. Demand Estimation
Demand estimation is a prognosis that concentrates on potential customer
activity. Utilizing a collection of factors that demonstrate what, for instance, rate
hikes, a rival's cost structure, or alterations in customer wage patterns would
affect consumption, it forecasts demand towards business offered commodities in
the market.
B. Demand Forecasting
Demand forecasting is the act of assessing and anticipating evolving
consumer demand for a specific commodity or function employing prognostic
evaluation of previous information. Demand management may establish
well-informed strategic choices concerning stock management and logistics
requirements through conducting sales promotions and satisfying consumer
demands by reviewing past revenue figures.

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3.2 Demand Forecasting Process
Within the given learning material, the demand forecasting process cycles
within 7 step approach which rounds with; (1) Specifying the objective of Demand
Forecasting, (2) Determining the nature of goods, (3) Determining the time
perspective, (4) Determining the level of forecasting, (5) Selection of proper
method or technique of forecasting, (6) Data Collection and modification, and (7)
Data analysis and estimations. Conversely, this helps businesses to gather and
establish more concrete demand projections in the market industry.

3.3 Determinants of Demand Forecasting

A. Capital Goods
Capital goods are developed components that are utilized during the
production of merchandise. They are involved in the creation of the finished
commodities that consumers utilize on such a constant basis. These constitute
one of the key dimensions of manufacturing, along with manpower, capital, and
raw assets.
B. Durable & Non-Durable Goods
Durable goods, like the title indicates, are lengthy commodities which are
capable of enduring an extended amount of time without degrading their
fundamental functioning. Durable goods may readily survive several generations
without tremendous loss, so they're generally commonly referred to as durables.
While Non-durable commodities, in contrast to durable goods, really aren't
intended for repetitive usage, through essence, commence to degrade shortly
during the initial utilization. Nondurable products are also delicate commodities
that may only be utilized once inherent usefulness is depleted. All of those are
products that are simply meant to be employed for a specified duration.

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 3.4 Methods of Demand Forecasting

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3.5 Demand Forecasting for a New Product

T-4. PRODUCTION ANALYSIS AND COMPENSATION POLICY

4.1 Production Analysis and Compensation Policy
A. Production Analysis
Production Analysis depicts manufacturing capacity visually and helps you
to estimate wastage and the costs involved with them. The organization could

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use Productivity Analysis on a consistent basis to establish areas where it is
losing far more funds and afterwards take remedial changes that would assist
provide more productivity and generate earnings.
B. Compensation Policy
A compensation policy is a set of guidelines established through a
business governing a worker's wage, perks, and incentives. Compensation
policies may be employed to motivate employees, The prospect of awards and
acknowledgment for top progressing individuals to strive extra in order to
simultaneously fulfill internal and organizational ambitions and targets. Providing
equitable and competent wages improves your business atmosphere.

4.2 Concept of Production & Product Function

A. Factors of Production

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B. Production Function
A set of procedures performed in commerce to manufacture commodities
through numerous inputs is referred to as a production process. In the immediate
period, the funds investment used by manufacturing is assumed to remain
constant. In the lengthy haul, however, a company does have the timescale
required to modify both the headcount of personnel yet also the quantity of
equity, in order to relocate to a varying capacity manufacturing unit,
headquarters, and so on. As a result, the quantities suitable for such amount of

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equity deemed necessary would be determined either by diverse organization
and operational functionality.

4.3 Law of Diminishing

It is a vital business notion that is essential in achieving the correct
proportion in manufacturing inside a business. Acknowledging the law of
diminishing returns, irrespective of the structure of the business, is going to have
a serious influence all over its productivity. Discovering a suitable equilibrium of
manufacturing components is fundamental, but somehow it requires expertise
and dedication.
A. Isoquant Curves
This is a business's equivalent of the
customer's efficient frontier. As a
byproduct, an isoquant can sometimes
be characterized as a visualization
depiction of various configurations of
multiple input that provide the identical
magnitude of outcome to a
manufacturer.
Properties of isoquant curve is divided
into four category; (1) Isoquant curves
slope downwards, (2) Isoquant curves are convex to origin, (3) Isoquant curves
cannot intersect each other, (3) Isoquant curves cannot intersect each other, and
(4) The higher the isoquant the higher the output.
B. Producer’s Equilibrium
The Producer's equilibrium seems to be
the phase when each of the estimated
models in manufacturing are already at
absolute slimmest. Incorporating these two
figures yields the ideal productivity levels,
frequently referred as the Producer's
equilibrium. Utilizing balance, the
Manufacturer may discover a variety of
ratios to boost efficiency.

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 C. Returns to Scale
It is the adjustment in performance caused by a corresponding variation
throughout all factors. The changing pace in outcomes would be an indicator of
returns to scale, since it represents the productivity process. As a result, returns
to scale is a concept associated with the creation of selling commodities in the
market.
3 aspects of Returns to Scale;

(1) Increasing Returns to Scale (2) Constant Returns to Scale (3) Diminishing Returns to Scale

- Outputs Proportion > Inputs proportion - Outputs = Inputs Proportion - Outputs Proportion < Inputs Proportion

T-5. COST ANALYSIS AND COST MANAGEMENT

Costs are particularly essential in management operations, particularly whenever
choosing among a variety of options. It aids within statistical specification of numerous
possibilities.
5.1 Cost Analysis
It relates to the monetarily, for which economic experts are involved with
covering the amount involved in employing components and how effectively they
may be to maximize the business's production. Generally known as the ultimate
value of marginal expenditure of manufacturing, it aids in determining the optimal
amount of output

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A. Method on Calculating Cost Analysis
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5.2 Cost Control And Cost Management

A. Cost Management
Cost management is the procedure of preparation, financing, and
documenting initiative expenditures in effort to ensure that organizations are on
track and aggregate expenditures manageable.
B. Project Cost Management

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5.3 Cost Estimation
The practice of anticipating the entire expenses involved with managing
projects under limit but on deadline is characterized as cost estimation.
A. Methods

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 Chapter II
“Usefulness Of The Acquired Learnings”

A. TO YOU AS A STUDENT.
Through the integration of a solid foundation in modern economics with business
education and practice, managerial economics extends outside of scope of conventional
business and management degrees. Throughout instruction in economics, numerical
methodologies, dilemma techniques, rational reasoning, and ability to communicate
effectively is taught to learners in the Managerial Economics curriculum. Those who
major in marketing will get the ability to apply theories created by economists and to
research contemporary problems in both the corporate sector. To create logical strategic
choices, managerial economics connects economic ideology with industry
understanding and implementations. This program is intended for learners who want a
more specialized major in economics that incorporates the essential comprehension of
accounting, financing, and database administration with the key traits of the field.
Personally, this subject has partly taught us on how to be smart and aware of
scarcity and decision making in every circumstance we may encounter. Having the skill
and practice in decision making is a huge benefit for students like me that need
guidance in education. Moreover, this subject also not merely physically and mentally
enhances its students capability in logical reasoning, as well as the development of
good handlement to people around or any situation may occur. Within this matter, this
subject provides advanced and better assistance to learners especially to students who
majors in business related courses in college. Keep in mind that subjects aren’t only
applicable in school related manners, but also in real-life situations today and in the
near future.

B. TO YOU AS FUTURE ACCOUNTANT

A concept called managerial economics explores how to use limited assets
wisely. It aids executives to make choices regarding the organization's clients, rivals,
and providers, in addition to choices regarding how a corporation operates internally. It
applies empirical and insightful techniques to evaluate economic ideas while addressing
legitimate business issues. The practice of managerial economics aids in
problem-solving, the development of intellectual abilities, and reasonable
problem-solving. Accounting, that is involved with documenting a commercial firm's
financial transactions, and managerial economics are likewise strongly linked fields. A
management economist actually relies heavily on accounting evidence as a crucial data
point for his stance process.

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 Moreover, as an accounting student in the making I believe that this subject
matter will help me build the longevity of my career in the future. all the reasoning,
teachings, syllabus and advice provided in this subject wouldn't be thrown into waste, as
I planned to embark within the industry of the corporate sector, for-which is a special
field in this subject. As an accountant, it is practically important to have mastery of
knowledge within managerial economics, since it teaches how to perform in a situation
that has scarce sources. So, it is better for future accounts to have the practice of
scarcity and capability in decision making with the knowledge of upbringing the
utilization of options and alternative choices. Furthermore, this will also be a great
foundation for my plan on taking a law degree after mastering accountancy. This subject
will be the plinth and supporting knowledge in my journey of obtaining to be a future
CPA-lawyer in the near future.

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