1. Introduction to Managerial EconomicsBY
Qazi Subhan
M. Phil (Eco), QAU, Pak
LLM (IPR), Italy
Qazi Subhan Bahria University Department of Management Sciences Spring 2010 1

2. Structure of the course (Up to Midterm)
Weeks 6
Theory of Production and
Mathematical Treatment
Weeks 5
Demand Estimation
Week 7
Theory of Cost and its linkage with M. Eco.
Weeks 4
Elasticity of Demand and supply and its relevance to M. Eco
Week 8
Estimation of production
and cost functions
Managerial
Economics
Weeks 3
Concept of Demand and supply and their importance in M. Eco
Week 9
MID Term Exam
Weeks 2
Goals of firm
Weeks 1
Introduction to managerial economic
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

3. Structure of the course (After Midterm)
Weeks 14
Concepts of Monopolistic
Competition
Weeks 15
Price Discrimination
Week 16
The role of government in market economy
Weeks 13
Practical Application of Oligopoly Models
Week 17
Presentations on Final projects
Weeks 12
Concept of Oligopoly
Managerial
Economics
Week 18
Presentations on Final projects
Weeks 11
Concept of Monopoly
Weeks 10
Introduction to market structure
Week 19
, Final Exam
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

4. Brief Contents Introduction to Managerial Economics
Economic Goals of Firm
Optimization of the core managerial Objectives
Concept of Supply and Demand and its application in Managerial Decision Making
Elasticities of Demand and Supply and its application in Managerial Economics
Demand Estimation
Theory of Production
Theory of Cost
Estimation of Cost and Production Functions
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

5. Brief Contents Market Structure Role of Government in Market Economy
Perfect Competition
Monopoly
Oligopoly
Collusive Oligopoly
Non Collusive Oligopoly
Monopolistic Competition
Price Discrimination
Role of Government in Market Economy
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

6. What is Economics Four dimensions of Definition;
According to Adam Smith
“Economics is a Science of Wealth”
Four dimensions of Definition;
Production of Wealth
Consumption of Wealth
Exchange of Wealth
Distribution of Wealth
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

7. According to Alfred Marshall
A well known Neo-Classical Economist has defined Economics as “Behavioral Science”
“Economics is the study of mankind in an ordinary business of life”.
Alfred Marshall has examined the individual behavior, ordinary business of life and use of the material requite of well beings.
Introduction
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8. According to Prof. Robbins
“Economics is a social science which studies the human behavior as a relationship between multiple ends and scarce resources which have an alternative uses”.
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9. CLASSIFICATION OF ECONOMICS
Positive Economics
Normative Economics
Mathematical Economics
Micro Eco
Macro Eco
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

10. Manager Economics Managerial Economics
A person who directs resources to achieve a stated goal.
Economics
The science of making decisions in the presence of scarce resources.
Managerial Economics
The study of how to direct scarce resources in the way that most efficiently achieves managerial goals.
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

11. Managerial Economics
Managerial economics refers to the application of Economic theory and tools of analysis of decision science to examine how an organization can achieve its objectives most efficiently.
Economic Theory consists of the knowledge of Micro and Macro economics
Decision science represents the techniques of Mathematics, Statistics and Econometrics
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12. How is Managerial Economics Useful?
Economic theory and methodology lay down rules for improving business Activity and public policy decisions.
Managerial economics helps managers to recognize how economic forces affect organizations and describes the economic consequences of managerial behavior.
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

13. How is Managerial Economics Useful?
Managerial Economics also links economic concepts and quantitative methods to develop vital tools for managerial decision making.
Managerial Economics identifies ways to achieve goals efficiently.
Managerial economics can be used to specify pricing and production strategies
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

14. How is Managerial Economics Useful?
Managerial economics provides production and marketing rules to help maximize profits
Once management has set relevant goals, managerial economics can be used to efficiently attain those objectives.
Managerial economics can be used to deduce the underlying logic of company, consumer and government decisions.
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

15. Main Questions of M.E How do markets work?
How do customers value the products?
What are the relevant production and cost measures for decision making?
How does competition affect business decisions in different market structures?
What prices should be set?
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

16. What would be the impact of changes in interest rates on costs of production?
How important to managerial and marketing decisions are changes in: foreign exchange rates, technology, incomes, government regulations, sources of energy and the balance of payments?
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

17. Role of Economics in Managerial Decisions
What to Produce
How to Produce
For whom to Produce
Product decision
Hiring, staffing, procurement decision
Market segmentation Decisions
There are three ways to answer this question
Market Process ( Market Forces)
Command Process ( State Involvement)
Traditional Process (use of customs and traditions)
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

18. Goals of Firm Economic Goals Non Economic Goals Production Max
Profit Maximization
Cost Minimization
Market Expansion
Non Economic Goals
Good work environment
Provide good services to customers
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

19. Objective and Value of Firm
NPV is the present value of all expected future profits of the firm which can be presented in the following formula in which R is estimated net cash flow from the project, r is discount rate and C stands for initial cost of the project. For instance C=500, discount rate is 12% and expected Cash Flow (R) R=200, then NPV for 5 years would be
Theory of firm was based on the assumption that the objective of the firm is to maximize the value of firms which can be presented as Net Present Value (NPV).
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20. Steps to Managerial Decision Making
Define the Problem
Determine the objectives
Explore the Alternative
Predicting the consequences
Make a Choice
Implementing the decision
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

21. Some Economic Concepts
Concept of factors of production
Marginal Analysis
Optimization Techniques
Theories of Profit
Risk Bearing theories of profit ( More risk, more profit)
Frictional Theory of profit ( Deviation from Long run equilibrium
Monopoly theory of profit
Innovation theory of profit
Managerial Efficiency Theory of Profit
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

22. Factors of Production FOP Land Labor Capital Organization
Prices of FOP
Rent
Wage
Interest
profit
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

23. Marginal Analysis In the theory of consumer behavior In theory of firm
Concept of MU and Price
In theory of firm
Marginal Revenue and Marginal Cost
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

24. Marginal Analysis and Optimization (Maximization and Minimization) Techniques
Maximized Parameters
Utility
Revenue
Production
Profit
Minimized Parameters
Cost
With the help of Marginal Analysis, optimization objective can be achieved
There are four parameters in the whole economics which are maximized and one is minimized.
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

25. Optimization techniques
If any function either it is total revenue, profit or total Cost is given and the objective is to know at which level of output it is maximized or minimized then there are two conditions
Introduction
Qazi Subhan Bahria University Department of Management Sciences Spring 2010

26. Optimization Techniques for TR Max
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27. Optimization Techniques for profit (π) Max
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28. Optimization Techniques for Cost Minimization
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

29. Lagrange Multiplier Introduction
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30. Practice Questions
Suppose a firm has an inverse demand function and its cost equation then find equilibrium output, Price, profit and total revenue.
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Qazi Subhan Bahria University Department of Management Sciences Spring 2010

31. Sample Question
Suppose
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32. Possibilities to ask the questions
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