Economics

Principles &
Applications
Dr. Manoj Mishra
Introduction to
Managerial
Economics
CNLU PATNA
DR. MANOJ MISHRA
Ten Principles of Economics
• Decision Making
1. People face trade-offs
2. Cost of something is what you give up to get it
3. Rational people think at the Margin
4. People respond to incentives
• How people interact
1. Trade can make everyone better off
Ten Principles of Economics
• How people interact
6. Markets are Usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
• How economy as a whole works
8. A country’s standard of living depends on its ability to produce Goods
and services
9. Price rise when government prints too much money
10. Society Faces a short-run trade off between Inflation and
Unemployment
Thinking Like an Economists
• Economist as a Scientist
• The Scientific Method: Observation, Theory, and More Observation
• The role of Assumptions
• Economic Models
• Circular Flow Diagram
• The Production Possibilities Frontier
• Microeconomics and Macroecnomics
The Economist as Policy Adviser
• Explain the cause of economic events.
• Recommend policies to improve economic outcomes
• Explains come from scientists – Attempts to improve – Policy advisors
• POSITIVE vs NORMATIVE Analysis
• Bhabha- “Minimum-wage laws cause unemployment”
• Bhave – “The government should raise the minimum wage”
• Economists now integral part of government policy makers.
 What is Economics?

•What to produce

•How to produce

•How to distribute

Managerial Economics,
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Definition, scope and functions
Microeconomics Macroeconomics Decision Sciences

Managerial Economics

Managerial Economics,
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 The BIG Picture
Income spent Revenue earned
Product R
Market e
Goods demand v
Goods supplied
e
n
Households u Firms
e

Inputs supplied Inputs demand

Factor
Income earned Market Factor costs

Managerial Economics,
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 Objective of the Firm

• Profit maximization
- economic profit:
total revenue minus total economic
costs
- economic costs are “relevant” costs

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Invisible Hand

Furthering selfish interest

Furthers growth of the Nation

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Problems in Managerial Economics
Classified into two broad categories:
• Those requiring ‘optimal’ solutions
- Total, Average and Marginal
magnitudes
• Those requiring equilibrium solutions
- Supply – Demand Analysis

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Graphical Solution to Supply- demand Analysis

P D
S
P2
E
P1
S D

q3 q4
q1 q2 Q

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Algebraic Solution
P = 300 – Qd P = 60 + 2Qs

a = 300; b = 1; c = 60; d = 2

300 – Q = 60 + 2Q

Q* = 80 P* = 220

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Total, Average, and Marginal magnitudes

Q P TR MR Q P TR MR
(=AR)
0 10 0 - 6 4 24 -1
1 9 9 9 7 3 21 -3
2 8 16 7 8 2 16 - 5
3 7 21 5 9 1 9 -7
4 6 24 3
5 5 25 1
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Relation between Total, Average and
Marginal Magnitudes
• When Total is rising, Marginal is positive
• When Total is falling, Marginal is negative
• When Total is maximum, Marginal is zero
• When Average falls/rises, Marginal falls/rises at a faster rate

Managerial Economics,
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Concept of Margin
• Rate of Change

• Derivative- Calculus

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Introduction to Managerial Economics (why
study Economics)

• Application in Business
• Say’s Law
• Elasticity
• Demand Forecasting
• Consumer Behaviour
• Market Analysis
• Externalities
Business decisions & Economic analysis
• FIRMS OUTPUT
• CONSUMERS OPTIMAL DECISION
• SALES FORECASTING
• FIRMS OBJECTIVE
• DESIREABLE MARKET
• POLICY FORMULATION
• STRATEGIES
Thank You!