Managerial Economics
Semester 1 · 15 topics in 5 units
Unit I 3 topics
- Managerial economics: definition, nature, scope and roleThe standard definitions (Spencer and Siegelman, McNair and Meriam, Brigham and Pappas), the nature and scope of the subject, its objectives, how it differs from traditional economics, and the role of the managerial economist.5 min
- Fundamental concepts I: incremental principle, marginalism, time perspective and discountingThe incremental cost and revenue principle with worked problems (including the February 2025 incremental and marginal revenue sum), the marginal concept, the short-run and long-run time perspective, and the discounting principle with present-value arithmetic.5 min
- Fundamental concepts II: opportunity cost and the equimarginal principleThe principle of opportunity cost, its features and uses, with worked problems on economic versus accounting profit and project choice, and the law of equimarginal returns applied to a firm's allocation of funds.5 min
Unit II 4 topics
- Demand: meaning, determinants, demand function and types of demandWhat demand means in economics, the factors that determine it, the demand function, the difference between a movement along and a shift of the demand curve, and the classification of demand used in business decisions.5 min
- The law of demand: statement, assumptions, why the curve slopes down, and exceptionsMarshall's law of demand with its schedule and curve, its assumptions, the five reasons the demand curve slopes downward from left to right, and the exceptions: Giffen goods, Veblen goods, expectations, ignorance and others.5 min
- Demand forecasting: meaning, types, steps and survey methods (including Delphi)What demand forecasting is and why firms need it, its types and levels, the steps in forecasting, the survey methods (consumer survey, sales force opinion, expert opinion, the Delphi method, market experiments) and the characteristics of a good forecast.5 min
- Demand forecasting: statistical methods, with worked sums on semi-average, moving average and least squaresTrend projection by the graphical, semi-average, moving average and least squares methods, with the February 2025 and August 2024 sales-forecasting problems worked in full, plus regression and barometric methods.5 min
Unit III 3 topics
- Production function, the law of variable proportions and the laws of returns to scaleThe meaning of a production function and the Cobb-Douglas form, the short-run law of variable proportions with its three stages worked from a table, and the long-run laws of returns to scale (increasing, constant, diminishing) with their causes.5 min
- Economies and diseconomies of scale: internal and externalMarshall's distinction between internal and external economies, the kinds of internal economy (technical, managerial, marketing, financial, risk-bearing, research, labour), external economies of concentration, information and disintegration, and the internal and external diseconomies that limit the size of a firm.5 min
- Cost concepts and cost curves: fixed, variable, average, marginal, explicit, implicit; short-run and long-run costThe cost concepts used in decisions, the short-run cost schedule worked from the February 2025 problem (TFC, TVC, AFC, AVC, AC, MC), the shapes of the short-run curves and the relation of AC and MC, and the long-run average cost curve as an envelope.6 min
Unit IV 3 topics
- Market analysis: demand and supply, price and output under perfect competition and monopolyClassification of markets, price determination by demand and supply, the features of perfect competition and the equilibrium of the firm and industry in the short and long run, and the features of monopoly with its price-output determination and price discrimination.6 min
- Monopolistic competition, oligopoly, duopoly and an introduction to game theoryChamberlin's monopolistic competition with its short-run and long-run equilibrium and excess capacity, the features of oligopoly and duopoly, the kinked demand curve, and game theory: players, strategies, payoffs, dominant strategy, Nash equilibrium and the prisoner's dilemma.6 min
- Pricing policies and practices: cost-plus, marginal costing, multiple product, transfer, skimming and penetration pricingObjectives and methods of pricing, cost-plus (mark-up) pricing, marginal cost pricing with worked contribution and special-order problems, multiple product pricing, transfer pricing and the arm's length rule, and skimming versus penetration pricing for new products.6 min
Unit V 2 topics
- Capital budgeting: meaning, significance, steps, forms, and the payback and NPV methodsWhat capital budgeting is, its objectives and role in decision-making, the steps in the process, the forms of capital budgeting decisions, the traditional and discounted cash flow techniques, and the payback period and net present value methods with merits, demerits and a short illustration.5 min
- Break-even analysis: meaning, assumptions, break-even chart, uses and limitationsBreak-even point and cost-volume-profit analysis: the concepts of contribution, P/V ratio, margin of safety and angle of incidence, the break-even chart described in words, the assumptions of the analysis, and its uses in managerial decisions and its limitations.5 min