MANAGERIAL ECONOMICS 3.

Market – individuals make their own

decision. (No govt. involved)
Unit 1: Introduction and Rational 4. Mixed – combination of command
Managerial Economics – the branch of and market (Limited govt.
economics, which deals with the involvement)
application of various concepts, theories,
methodologies of economics to solve
practical problem in business
management.

Economics – the study of behavior of

human beings in producing, distributing,
and consuming material goods and services MARGINAL ANALYSIS
in a world of scarce resources.
• companies use marginal analysis as a
Management – is the discipline of decision-making tool to help them
organizing and allocating a firms scarce maximize their potential profits.
resources achieve its desired objectives. OUT TB TC NB MB MC MNB
1 55 20 35 0 0 0
MAXIMIZING PROFIT
2 165 135 30 110 115 5 CIRCULAR FLOW MODEL
3 290 256 34 125 121 4
• when business achieves its highest
revenue of profit.
4 520 473 47 230 217 13 • demonstrates how money moves
5 780 690 90 260 217 43 from producers to household and
• By producing a quantity of product 6 1,14 1,03 110 360 340 20
where MR = MC 0 0
back again in an endless loop.
7 1,60 1,59 10 460 560 100 • money moves from producers to
Note: As long as the MR is higher than the 0 0 workers as wages – workers spend
8 2,19 2,27 80 590 680 90
MC; Rational to the firm to produce, but if 0 0 money on products and services.
the MC is higher than MR, the firm is losing 9 2,87 2,99 20 680 720 40
money. 0 0 Firms – produce and sell product goods and
10 3,65 3,96 310 780 970 190 services.
0 0
Marginal Revenue – revenue gained from
each additional unit of output sold in the Household – buy and consume goods and
market. services.
Red – Negative

• It means that what amount will the MANAGERIAL DECISION MAKING

TB – Total Befit
firms total revenue increase with the • aimed to resolve identified problems
sale of each additional unit of goods TC – Total Cost
and enabling effective and efficient
and services.
NB – Net Benefits performance of business activities.
THEORY OF PRODUCTION (Short-Run) • respond to opportunities and threats.
MB – Marginal Benefits
Example: Firm A Price = 5 HOW DO MANAGERS MAKE DECISIONS?
MC – Marginal Cost
TP TR MR TC MC 1. Identifying Problem
MNB – Marginal Net Benefit 2. Identifying decision criteria
0 0 - 3 -
(Relevant Factors)
1 5 5 7 4 ECONOMIC SYSTEM
3. Weighting Criteria
2 10 5 10 3 • method societies and government 4. Developing Alternatives
3 15 5 12 2 used to organize, allocate, distribute, 5. Analyzing Alternatives
4 20 5 14 2 goods, services, and resources across 6. Selecting the Best Alternatives
locations. 7. Implementing the Decisions
5 25 5 17 3
8. Evaluating the Decisions
6 30 5 22 5 TYPES OF ECONOMIC SYSTEM
7 35 5 30 8 Importance: business growth, increases
1. Traditional – based on goods, efficiency, achieving objectives.
8 40 5 45 15
services, and work, all of which follow
certain established trends. It relies a MARKET STRUCTURE
Green – Increase Red – Decrease lot on people, and there is very little
• how different industries are classified
division of labor or specialization.
as differentiated based on their
(Barter to Barter)
degree and nature of competition for
2. Command – relies on government to
services and goods.
make all economic decision. (Govt.
Controls)
Importance: it describes how firms are “Inverse proportional”
different and categorized by the types of
products they sell and how those items Quantity Demand – the total number of
influence their operations. units purchased at that price.

Perfect Market – large no. of buyers and Demand Curve - graphical presentation of
sellers, price takers, offering identical demand schedule.
product, free entry and exit. Demand Schedule – table presentation to
Imperfect Market – small no. of buyers, get demand curve.
price maker, offering same product, high Determinants of Demand
barriers to entry and exit.
1. Income
Importance: it describes how firms are 2. Taste and preference
different and categorized by the types of 3. Price of related goods
products they sell and how those items 4. Price of substitute goods
influence their operations. 5. Population Consumers Equillibrium – a state of
Market – a place where buyers and sellers 6. Future expectations maximum satisfaction.
meet to exchange. Formula: Coe = Mux / Px = Muy/ Py
TYPES OF MARKET Budget = 20.00
Perfect Competition Px = 2 ice cream
• Large no. of buyers and sellers (price Py = 4 chocolate
takers)
• Small business, same products Q Tux Mux Mux/Px
• No hindrance 1 11 11 5.5
2 20 9 4.5
Note: easy for businesses to enter the 3 28 8 4
market and leave it. 4 35 7 3.5
5 41 6 3
Monopolistic Competition
Supply – ability and willingness to produce
• Small amount of market power
or sell. Q Tuy Muy Muy/Py
• Don’t sell identical product 1 25 25 6.25
• Easy to entry and exit Law of Supply – when the price increases 2 46 21 5.25
the quantity supplied also increases. (vice 3 64 18 4.5
Oligopoly
versa) 4 79 15 3.7
• Small no. of buyers competing to 5 90 11 2.75
“Directly Proportional”
obtain the factors of production
Ceteris Paribus – all things remain You can have a maximum satisfaction by
Monopoly
constant. buying 2 ice cream and 3 chocolate.
• Unique Quantity Supplied - the number of goods
• Worst possible market or services that suppliers will produce and
• One seller sell at a given market price.
• No competition
• Determine how much of the Supply Curve – graphical presentation of
good or service to supply supply schedule.
• You can dictate the price
Supply Schedule – table presentation to
Note: consumer can only buy the product get supply schedule.
she wants from one seller because no other
Determinants of Supply
business offers the same things.
1. Cost of production
Unit 2: Demand, Supply and Market
2. Technology
Equilibrium/ Consumer behavior
3. Taxes
Demand – willingness and ability to buy. 4. Number of producers
5. Availability of resources
Law of Demand – when the price rises, the 6. Weather
quantity demanded decreases. (vice versa) 7. Subsidies