MANAGERIAL ECONOMICS:

References & Basic Concepts

Prof. Sudhir K. Jain

Department of Management Studies
Indian Institute of Technology Delhi
Hauz Khas, New Delhi – 110016
 REFERENCES (1/5)
 Peterson, H. Craig, W. Cris Lewis & Sudhir K. Jain:
Managerial Economics, New Delhi: Pearson Education
(2006/2018)

 Keats: Managerial Economics, New Delhi: Pearson

Education

 Salvatore, Dominick: Managerial Economics, Singapore:

Thomson Asia*

 Hirschey, Mark: Economics for Managers, Thomson South-

Western*, (2006)

July 2018 Prof. Sudhir K. Jain 2

 REFERENCES (2/5)
 Truett, Lila J. & Dale B. Truett: Managerial Economics,
Singapore: John Wiley & Sons
 Reekie, W. Duncan & Jonathan N. Crook: Managerial
Economics, New Delhi; Heritage Publishers*
 Seo, K.K. : Managerial Economics, Delhi: Surjeet
Publications*
 Dean, Joel: Managerial Economics, New Delhi: Pearson
Education
 Damodaran, Suma: Managerial Economics, New Delhi:
Oxford University Press
 Chopra, O.P.: Managerial Economics, New Delhi:
McGraw Hill
July 2018 Prof. Sudhir K. Jain 3
 REFERENCES (3/5)
 Baumol, William J: Economics Theory and Operations
Analysis, New Delhi: Pearson Education
 Mote, V. L. Samuel Paul, G.S. Gupta: Managerial Economics
(Concepts and Cases), New Delhi: McGraw Hill
 Gupta, G.S: Managerial Economics, New Delhi: McGraw Hill
 Mehta, P.L: Managerial Economics (Analysis, Problems and
Cases), New Delhi: Sultan Chand and Sons.
 Dwivedi, D.N.: Managerial Economics: New Delhi: Vikas
Publishing House
 Adhikary, M: Managerial Economics: Delhi: Khosla Publishing
House
July 2018 Prof. Sudhir K. Jain 4
 REFERENCES (4/5)
 Bharat-Ram, Vinay: Towards a Theory of Import
Substitution, Exchange Rates & Economic Development,
New Delhi: Oxford University Press
 Bharat-Ram, Vinay: The Global Firm, New Delhi: Oxford
University Press.
 Jeffrey, Jaffett: Business Forecasting Methods, Oxford:
Basil Blackwell
 Gross, Charles, W. Robin, T. Peterson: Business
Forecasting, Boston: Houghton Misslin Company
 Rao, Potluri & Roger LeRoy Miller: Applied Econometrics,
New Delhi: Prentice Hall of India, 1972
July 2018 Prof. Sudhir K. Jain 5
 REFERENCES (5/5)
 Johnston, J.: Econometric Methods, McGraw Hill
 Koutsoyiannis, A.: Theory of Econometrics, New Delhi:
Macmillan ELBS
 Dhrymes, P.J.: Econometrics, Harper & Row.
 Gujrati, D.: Basic Econometrics, McGraw Hill.
 Theil, H.: Principles of Econometrics, John Wiley & Sons.
 Klein L.R.: A Textbook of Econometrics, Pearson
Education

July 2018 Prof. Sudhir K. Jain 6

 TOPICS
 Basic Concepts
 Consumer Behavior: Analysis of Demand
 Consumer Behavior: Elasticity of Demand
 Demand Forecasting
 Analysis of Costs
 Market Equilibrium Analysis
 Market Situations
 Pricing Principles & Practices
 Production Analysis
 Project Appraisal Techniques: Social Cost-Benefit Analysis

July 2018 Prof. Sudhir K. Jain 7

 MANAGERIAL ECONOMICS
MEANING & SCOPE
 Focus of Managerial Economics is on areas of decision
making and the decision rules.
 Lies on borderline of Management & Economics

ASSUMPTION
 Practicing managers need not necessarily know the
theoretical complexities underlying economically sound
managerial decisions.
 They should have economic orientation and understand
basic principles of economics as applicable in managerial
decision making
July 2018 Prof. Sudhir K. Jain 8
“Managerial Economics is concerned with using logic of
economics, mathematics and statistics to provide effective
ways of thinking about business decision problems”
- HAGUE

“Managerial Economics attempts to bridge the gap

between the purely analytical problems that intrigue many
economic theorists and the problems of policies that the
management must face”
- MANSFIELD
July 2018 Prof. Sudhir K. Jain 9
 SOME
BASIC CONCEPTS
IN
ECONOMICS

July 2018 Prof. Sudhir K. Jain 10

 SOME BASIC CONCEPTS IN
ECONOMICS (1/3)
 Firm and Industry
 Factors of Production and their Rewards
 Opportunity Cost
 Total Revenue, Marginal Revenue, Average Revenue
 Total Cost, Marginal Cost, Average Cost
 Total Product, Marginal Product, Average Product
 Total Utility, Marginal Utility

July 2018 Prof. Sudhir K. Jain 11

 SOME BASIC CONCEPTS IN
ECONOMICS (2/3)
 Explicit Costs and Implicit Costs
 Accounting Profit and Economic Profit
 Time Perspective
 Discounting for Time
 Risk and Uncertainty
 Optimum Decision Rule
 Consumer Surplus

July 2018 Prof. Sudhir K. Jain 12

 SOME BASIC CONCEPTS IN
ECONOMICS (3/3)
 Scarcity
 Marginalism and Incrementalism
 Market Situations
 Equi-Marginalism (optimization is arrived at when Marginal
Contribution of each resource is equal in all of its uses)
 Multi-market Seller: MR1 = MR2 = MR3 (maximize: TR)
 Multi-plant Producer: MC1 = MC2 = MC3 (minimize: TC)
 Multi-factor Employer: MP1 = MP2 = MP3 (maximize: Q)
 Multi-commodity Consumer: MU1 = MU2 = MU3 (max: TU)

July 2018 Prof. Sudhir K. Jain 13

 PROFIT THEORIES OF FIRMS
(Economic Theories)

July 2018 Prof. Sudhir K. Jain 14

 PROFIT THEORIES OF FIRMS
(Why Profits?)
I. Profits are rewards of bearing risk & uncertainty:
 Acceptance of the product by consumers
 Actual demand may be less than anticipated
 Sudden fall in demand
 Sudden fall in prices
 Sudden increase in input costs & inability to increase product
price
 Non-availability of raw materials
 Introduction of a better substitute by competitors
 Risk due to fire, theft, accidents, war, rioting,….etc.
July 2018 Prof. Sudhir K. Jain 15
II. Profits are consequence of imperfections
in the competitive adjustments of the
economy to dynamic changes:

e.g. Demand, inflation in post-war periods,

land value/price.

July 2018 Prof. Sudhir K. Jain 16

III. Profits are rewards for successful innovations

 R&D and Technology Transfer leading to:

 Introduction of new products

 Modification in existing products

 Improvement in the quality of products (durability,

reliability, ease of operation etc.)

July 2018 Prof. Sudhir K. Jain 17

 POLICIES ON
PROFIT MAXIMISATION:
REASONS FOR LIMITING PROFITS

July 2018 Prof. Sudhir K. Jain 18

 POLICIES ON PROFIT MAXIMISATION
Reasons for Limiting Profits
WHY AIM AT REASONABLE PROFIT:

 to prevent entry of competitors

 to project a favorable public image
 to restrain trade union demands
 to maintain customers’ goodwill
 to maintain better working conditions

July 2018 Prof. Sudhir K. Jain 19

WHY FIRMS ARE NOT ABLE TO MAXIMIZE PROFITS:

 Managers maximize their utility functions

 Alternative objectives (of bigger business firms): Sales

maximization, Target market share, Target rate of return,
Growth rate (diversification)

 Inadequate knowledge about market conditions

(Demand, Supply, Price)

July 2018 Prof. Sudhir K. Jain 20

 Theories
of
Business Firms

July 2018 Prof. Sudhir K. Jain 21

 Theories of Business Firms

 Profit Maximization Model

 Maximize short-run profits
 Limitations

- Tax laws, labor laws

- Benefits to employees: Subsidized lunch, other perks

- Good community relations

July 2018 Prof. Sudhir K. Jain 22

• Sales Maximization Model (Baumol)

- Minimum desired profit

- Try to increase market share

- Benefits of higher market share

July 2018 Prof. Sudhir K. Jain 23

• Growth Maximization Model

 Expansion through retained earnings

 Increase in long term profits

 Increase in Market Share

 Leadership

July 2018 Prof. Sudhir K. Jain 24

• Present Value Model:

n Rt
NPV = ∑ ──── ─ Io
t=1 (1 + r)t

[Maximization of Owner’s Wealth]

July 2018 Prof. Sudhir K. Jain 25

 • Managerial Utility Model (Williamson)

 Minimum Desired Profit

 Minimum Desired Dividends
 Availability of Funds for Growth
 Managers Maximize their Utility Functions

1932: Berle & Means: “Separation of Ownership & Management”

July 2018 Prof. Sudhir K. Jain 26

 Thank you
– Prof. Sudhir K. Jain

I.I.T. Delhi

27 2018
July Prof. Sudhir K. Jain