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Managerial Economics
Credits: 4
Basics of Managerial Economics
Introduction to Economics, Basics of Managerial Economics, Introduction to Economics, Nature and Scope of
Managerial Economics, Managerial Economics & Economics Related Disciplines Interrelationship with Other
Subjects, Economics Tools
Demand Theory
Demand Analysis, Elasticity Concepts, Demand Forecasting, and Importance of Demand forecasting
Cost of Production:
Cost Analysis, Economic of Scale, Cost Reduction and Cost control, Capital Budgeting
Production Theory
Introduction to Production Concept, Production Analysis, Stage of Production, Return to Scale, Supply
Market Analysis
Introduction to market Structure, Perfect Competition, Monopoly, Oligopoly and Pricing
Suggested Readings:
1. Managerial Economics – Analysis, Problems and Cases, P.L. Mehta, Sultan Chand Sons, New Delhi
2. Managerial Economics – Varshney and Maheshwari, Sultan Chand and Sons, New Delhi
3. Managerial Economics – D. Salvatore, McGraw Hill, New Delhi
4. Managerial Economics – Pearson and Lewis, Prentice Hall, New Delhi
5. Managerial Economics – G.S. Gupta, T M H, New Delhi
1.1 Introduction to Economics
1.2 Concept of Economics in Decision Making
1.3 Scope of Managerial Economics
1.4 Relationship between Managerial Economics and Other Subjects
1.5Tools and Techniques of Decision Making
1.6 Review Questions
-----------------------------------------------------------------------------------------------------------This unit introduces you to the basic concepts of Economics. After going through this
unit you will come to know how Economics is helpful for Managers in their Decision
making process.
• To analyze the concept of economics- scarcity and efficiency
• Micro Economics and macro economics
• Concept of managerial economics
• How managerial economics differ from economics and its relationship with
Good morning students, the basic purpose of our studying of economics are the efficient
utilization of scarce resources. We always have to make choices amongst various
alternatives available for efficient utilization of our scarce resources. The twin theme of
economics is scarcity and efficiency. We will discuss this twin theme in detail before
coming to managerial economics.
Scarcity and Efficiency: The first question which comes here is what is Economics?
Economics is the study of how society chooses to use productive resources that have
alternative uses, to produce commodities of various kinds, and to distribute them among
different groups.
Two key ideas in economics:
• Scarcity of goods

Efficient use of resources
™ Scarcity of goods
The word scarce is closely associated with the word limited or economic as opposed to
unlimited or free. Scarcity is the central problem of every society.
• Concept lies at the problem of resource allocation and problem of a business
• The essence of any economic problem, micro or macro, is the scarcity of
• The managers who decide on behalf of the corporate unit or the national economy
always face the economic problem of Scarcity of good quality of materials or
skilled technicians
As a Marketing Manager: He may be encountering scarcity of sales force at his
As a Finance Manager: He may be facing the scarcity of funds necessary for expansion
or renovate a program
As a Finance Minister of the Country: His basic problem when he prepares the budget
every year is to find out enough revenue resources to finance the necessary expenditure
on plans and programs. Thus, we see that Scarcity is a universal phenomenon.
Let us attempt a technical definition of “Scarcity”
• In economic terms it can be termed as “ Excess of Demand”
• Any time for any thing if its demand exceeds its supply, that thing is said to be
• Scarcity is a relative term: Demand in relation to its supply determines the
element of scarcity.
Unemployment: Scarcity of jobs
Unsold stock of inventory: Scarcity of buyers
Under utilized capacity of plan: Scarcity of power or other support facilities.
Had there been no scarcities there would not have been any managerial problem. It is
only because of this scarcity a manager has to decide on optimum allocation of scarce
resources of:
• Man
• Materials
• Money
• Time
• Energy
Thus we see that every business unit or manager must aim at rational but optimum
allocation of scarce resources. Optimality lies in finding the best use of scarce resources,
given to the constraints.
™ Efficiency of Resources
Economy makes best use of its limited resources. That brings the critical notion of