1. Course Code: ECO 101 2. Course Title: Managerial Economics

3. Course Overview:Managerial Economics deals with the application of microeconomics to the practical problems of businesses/firms in order to facilitate rational managerial decisions and possible solutions of managerial problems. There are two broad branches of economics science, such as microeconomics and macroeconomics. Microeconomics deals with the behaviour of individual consumer and producer. Macroeconomics deals with the aggregate variables, such as national income, inflation etc. While microeconomics would help managers in identifying how economic forces affect organization and more so what will be the economic consequences of managerial behaviour, macroeconomics helps identify, explain and adjust to the entire gamut of macroeconomic context in which business would operate. Managerial economics deals with the applications of microeconomic theory. It integrates economic theory with business practice for the purpose of facilitating planning and decision making. As a discipline it helps managers to recognize how economic forces affect organizations and describes the economic consequences of managerial behavior.

The basic economic problem viz. resources are limited (in scarcity) and the uses to which they can be put to are unlimited, forces firms to make decisions at every stage of operation, be it sourcing of inputs, conversion of inputs into output or distribution of output. This decision-making involves choosing the optimal solution from the available alternatives. Different alternatives entail different combinations of resources. Had resources been unlimited, one could have utilized all the alternatives and the business could have continued well without any problem. But the scarcity of resources requires managers to analyze and evaluate all the available choices and choose the alternative that produces the result most consistent with the objective of the firm.

The problem before a firm can be manifold. While the sourcing of inputs could involve deciding whether to make, or buy, how much to buy and from whom to buy, in the conversion process, the problems could relate to deciding on the production techniques to be used, how much to produce, what combination of inputs to use and so on. When it comes to marketing the product, questions concerning product pricing, advertisement expenditure and logistics become paramount.

Finding optimal solutions to all such managerial problems is rendered easy by the concepts and theories of economics and methodologies of the decision sciences. The basic economic concepts of demand, cost, production and price, along with the theories of consumer behavior, profit maximization and market structure helps in finding out optimal solutions. Without, a fair comprehension of the concepts of opportunity costs, marginal reasoning and discounting, many managerial decisions would have been grossly illogical. The decision-making framework of economics, when applied with the methodologies of decision sciences like statistical estimation, forecasting, optimization, game theory, etc. provides a rational base to managers for solving business problems.

In general, managerial economics can be used by the goal-oriented manager in two ways. First, given an existing economic environment, the principles of managerial economics provide a framework for evaluating whether resources are being allocated efficiently within in a firm. For example, economics can help the manager determine if profit could be increased by reallocating labor from a marketing activity to the production line. Second, these principles help managers respond to various economic signals. For example, given an increase in the price of output or development of a new lower-cost production technology, the appropriate managerial response would be to increase output. Alternatively, an increase in the price of one input, say labor, may be signal to substitute other inputs, such as capital, for labor in the production process.

This course also provides considerable attention to examining statistical techniques for quantitative estimation which helps in economic optimization in relation to business objective of the firm. It examines production theory and cost in detail along with their empirical estimation. In the last part of course, it examines different types of market structures and pricing decisions relevant under different market conditions. The knowledge of the number of sellers and buyers, the nature, extent and degree of competition etc. determines the nature of policies to be adopted by a firm in the market.

4. Programme level learning goals:The predominant goal of this course is to make students better decision- makers in a business or institutional context as also to facilitate the application of principles and techniques to personal financial and economic decisions. The secondary purpose of the course is to sharpen the analytical skills so that students will be better able to recognize and solve decision problems in different contexts. It is as relevant to the management of non-business, nonprofit organizations such as government agencies, cooperatives, schools, hospitals, museums, and similar institutions, as it is to the management of profit-oriented businesses.

In a nutshell, managerial economics is the application of microeconomics theory and methodology to managerial decision-making. The course on managerial economics would facilitate the following broad aspects of learning for students:

Use of microeconomics tools for managerial decision making. Behavior of consumers and producers and how they come in terms with each other in various market

conditions. Analysis of possible array of factors likely to affect future decision making.

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5. Learning OutcomeAfter completing the course student shall be able to:

1. Apply the economic approach to individual and business decisions. (LO-1)2. Analyze consumer behavior and estimate demand and supply. (LO-2)3. Work out production and cost of a firm. (LO-3)4. Identify nature and intensity of competition in different types of market. (LO-4)

6. List of topics/modulesTopic/Module Contents/concepts

Module I: Introduction Economic Problems Rationale and Objectives of Firms Principal-Agent Problem Economic Profit Scarcity and Opportunity Cost

Module II: Demand and Supply Analysis Utility as the basis of demand Marginal Utility and Price Demand and Supply Function Exceptions to Law of Demand and Supply Price Mechanism Consumer Surplus Producer’s surplus

Module III: Elasticity of Demand Price, Income and Cross Elasticity Elasticity and Revenue Classification of Goods

Module IV: Production and Cost Analysis Production Function Returns to Factor and Returns to Scale Economies of Scale and Scope Cost Concepts; Short Run and Long Run Cost

Module V: Market Structures and Pricing decisions Perfect Competition Monopoly Discriminating Monopoly Monopolistic Competition Oligopoly Special Pricing Decisions & Practices.

7. Evaluation CriteriaComponent Type Description WeightReflective Notes

Individual Reflective notes are a collection of notes, observations, thoughts, and learning that the students have experienced after attending the class. The purpose of reflective notes is to enhance the students’ learning through the process of reflecting, thinking and writing about their learning experiences of the class. The reflective notes will include only the ‘key learning and key take-away’ which the students got from the class.

10%

Quizzes Individual There will be four quizzes conducted during the course. Quizzes may be multiple-choice based, fill in the blanks, one liner, etc. There shall not be any make-up quiz for any student.

10%

Concept-based assignment

Group The group will be allotted a concept of managerial economics with a mandate to track, compile, synthesize, document and assimilate the news items in print and other media, directly or indirectly related to the assigned concept. The group will submit the document to the faculty and will be evaluated on the basis of the quantity and quality of news coverage and analysis. Other assignments may include collection of concept-based videos, case studies, research and popular articles, etc.

10%

Project Group It will be group task (group of 5-6 students). The students will be assigned a topic to work upon. The student will collect (primary or secondary as the case may be) and analyze data and prepare a project report and submit the same to the faculty. In addition, the students will have to briefly discuss the relevant concepts of managerial economics related to the assigned topic.

10%

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Component Type Description WeightMid Term Exams

Individual This will be a blend of conceptual questions as well as application based questions.

20%

End Term Exams

Individual This will be a combination of cases; application based situational questions and conceptual questions.

40%

8. Recommended/ Reference Textbook and Resources

Text Book Managerial Economics, Christopher R Thomas, S Charles Maurice, and Sumit Sarkar (2010) 9th Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi. (Referred here after as Text).

References 1. Managerial Economics – Economic Tools for Today’s Decision Makers, Paul G. Keat, Philip K. Y. Young, and Sreejata Banerjee (2011)Pearson Education

2. Managerial Economics, H. Craig Petersen, W. Cris Lewis, and Sudhir K. Jain(2006) Pearson Education

3. Managerial Economics in a Global Economy, Dominick Salvatore (2008)Oxford University Press

Internet Resources

http://economics.about.com - While Economics at about.com is meant mainly as a general purpose tool, it can also be very helpful for students who are enrolled in an introductory economics.http://www.economist.com - The Economist online offers authoritative insight and opinion on international news, politics, business, finance, science and technology. They publish all articles from The Economist print edition (including those printed only in British copies) and maintain a searchable online archive that dates back June 1997. It also offers a variety of web-only content, including blogs, debates and audio/video programs.

9. Session PlanSession Topic Requirements:

Readings/ CasesLearning Outcomes

Module I: Fundamentals of Managerial Economics

1. Course Overview; Assessment and expectations; Relevance of Managerial Economics for business decision-making

Text: Chap 1 (pp: 4-5) Development of preliminary understanding and creation of interest in managerial economics. (LO -1)

2. Forms, functions and objectives of firms

Text: Chap 1 (pp: 6-10) Appreciation of importance of firm as an agent of production, agency problem and possible solutions, scarcity and hence opportunity cost. (LO -1)

3. Principal-agent problem; scarcity and opportunity cost

Text: Chap 1 (pp: 11-18)

Appreciation of importance of agency problem and possible solutions, scarcity and hence opportunity cost. (LO- 1)

Module II: Demand and supply analysis

4. Utility as a basis of demand; basic assumptions of consumer theory; price and marginal utility; law of diminishing marginal utility

Text: Chap 5 (pp: 151-160)

Appreciating the concept of utility and significance of diminishing marginal utility. (LO -2)

5. Demand Analysis: Law of Demand, Determinants of Demand, Exceptions, Classification of commodities: Good, Bad, Neuter.

Text: Chap 2 (pp: 30-42)Case let 1: The 007 Car is Here!

Understanding the nature and influence of basic determinants of demand for a commodity. (LO -2)

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Session Topic Requirements: Readings/ Cases

Learning Outcomes

6. Consumer’s preference and budget constraint; Revealed preference, Income and Substitution effect, Engel’s Law.

Text: Chap 5 (pp: 160-171)Quiz-1: (syllabus: session 1-5)

Realization of significance of transforming consumer’s preference domain from weak ordering into strong ordering to increase the market share. (LO -2)

7. Supply Analysis Text: Chap 2 (pp: 42-50)

Understanding the nature and influence of basic determinants of supply of a commodity. (LO -2)

8. Market equilibrium and disequilibrium, Price mechanism.

Text: Chap 2 (pp: 50-52)

Appreciation of market equilibrium mechanism and price as a market adjuster. (LO -2)

9. Measuring the value of market exchange (consumer surplus, producer surplus and social surplus); Government intervention (floor price, ceiling price)

Text: Chap 2 (pp: 53-68)

Guest Session 1:Government’s price intervention

Assimilating the welfare effects of market system, and need & implications of government’s price intervention (LO -1, 2)

Module III: Elasticity of Demand10. Price elasticity; factors affecting price

elasticity of demand; business applications of price elasticity

Text: Chap 6 (pp: 196-209)

Case let 2: CNG Vehicles have arrived.

Ability to identify appropriate price adjustment in order to increase firm’s sales. (LO -2)

11. Income, cross elasticity; business applications of income and cross elasticity; Elasticity and Revenue.

Classification of goods: Inferior, Normal and Luxury.

Text: Chap 6 (pp: 209-219)Quiz-2: (syllabus: session 6-10)

Ability to anticipate the impact on firm’s business due to fluctuation in consumer income and competing firm’s price adjustment. (LO -2)

Module IV: Production and cost analysis

12. Production function; production in the short run - returns to a variable factor

Text: Chap 8 (pp: 272-283)

Anticipating output when one or more factors of production are fixed. (LO-3)

Mid Term Examination (syllabus: sessions 1-12)

13. Production in the long run and returns to scale; Economies of scale and Economies of scope,

Text: Chap 9 (pp: 303-320)

Anticipating output and when a firm can change (subject to budget constraint) all the factors of production. (LO-3)

Ability to identify the ways & means to reap the economies of scale and scope and avoid diseconomies of scale.

14. Externalities and Market Failure. Text: Chap 9 (pp: 324-329)

Case let 3: Cutting Costs: The Solar Steam Cooking WayGuest session 2 : Externalities in production

Ability to find out possible measures to exploit positive externality and reduce negative externality in production. (LO-3)

15. Cost Analysis in Short and Long Run Text: Chap 8 (pp: 283-295) Text: Chap 9 (pp: 320-

Anticipating cost behaviour when a firm changes its production technology in both short and long run.

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Session Topic Requirements: Readings/ Cases

Learning Outcomes

330) (LO-3)

16. Break-Even and Profit Contribution Analysis

Handout: Break – Even AnalysisQuiz-3: (syllabus: session 13-15)

Assessment of feasible scale of production and prices. (LO-3)

Module V: Market structure and pricing decisions

17. Managerial decisions in perfectly competitive market: demand facing a price-taking firm; profit maximization in short-run and long-run;

Text: Chap 11 (pp: 375-385)

Understanding the nature of demand for undifferentiated product. (LO-4)

18. Managerial decisions for firms with market power: measurement of market power; determinants of market power;

Output and pricing decisions under monopoly;

Text: Chap 12 (pp: 423-443)

Understanding the determinants and measurement of market power.

Finding out profit-maximizing output and price of a unique product (without close substitutes). (LO-4)

19. Price discrimination Text: Chap 14 (pp: 536-554)

Ability to design differential pricing pattern for sales and profit maximization. (LO-4)

20. Price and output under monopolistic competition;

Text: Chap 12 (pp: 446-456)

Case let 4: Booming Business: Indian Hotel Industry

Finding out profit-maximizing output and price under monopolistically competitive market structure. (LO-4)

21. Strategic decision making in Oligopoly market structure.

Interdependence and price rigidity; Fundamentals of game theory

Text: Chap 13 (pp: 474-486)Quiz-4: (syllabus: session 16-20)

Taking strategic decisions in oligopoly market structure. (LO-4)

22. Pricing Strategies: Cost-Plus pricing, Peak-load pricing, Product Bundling, Transfer pricing

Text: Chap 14 (pp: 559-573)

Understanding the different pricing techniques. (LO-4)

23. Economics of Trust, Networking and Solidarity

Handout Appreciating the role of networking, trust and solidarity. (LO-1)

24. Review and Summary ---

End Term Examination (syllabus: sessions 1-24)

10. Contact Details Name of instructors

Mahima Sharma (sections A); R. K. Ojha (sections B & C); Mohd. Irfan (section D & E);

Office location Mahima Sharma (old block); R. K. Ojha (old block); Mohd. Irfan (new block); Telephone Mahima Sharma (236); R. K. Ojha (230); Mohd. Irfan (269); Email Mahima Sharma (mahima.sharma@jaipuria.ac.in); R. K. Ojha (raj.ojha@jaipuria.ac.in); Mohd.

Irfan (mohd.irfan@jaipuria.ac.in); Teaching venue Section A (room no. 113); section B (room no. 114); section C (room no. 115); section D (room no.

121); section E (room no. 120)Office hours 09:30 a.m. to 05:30 p.m.

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