Managerial Economics

Swati Watts
Last Update September 17, 2021
1 already enrolled

About This Course

The purpose of managerial economics is to provide economic terminology and reasoning for the improvement of managerial decisions. It studies the phenomena related to goods and services from the decision-making entities. It helps managers to decide on the planning and control of the benefits. It is synchronized between the planning and control of any institution or firm and hence its importance increases. Thus, it plays a massive role in business decisions. 

Learning Objectives

By the end of the course, a student will be able to:
1. Understand the nature of economics in dealing with the issue of scarcity;
2. Recognize the difficulties in managerial decision making today;
3. Perform supply and demand analysis to analyze the impact of economic events on markets;
4. Evaluate the factors affecting firm behavior, such as production and costs;
5. Analyze the performance of firms under different market structures.

Target Audience

  • Anyone who has passed his/her 12th exams from Sciences/Commerce/Humanities can study the course


67 Lessons40h

Unit 01

Quadrant 03: FAQs00:00:00

Socialist economy /command economy

A socialist economy is a system of production where goods and services are produced directly for use, in contrast to a capitalist economic system, where goods and services are produced to generate profit (and therefore indirectly for use).

Capitalist economy/ free market economy

Capitalism, also called free market economy or free enterprise economy, economic system, dominant in the Western world since the breakup of feudalism, in which most means of production are privately owned and production is guided and income distributed largely through the operation of markets.

Mixed economy

A mixed economic system is a system that combines aspects of both capitalism and socialism

Scarcity and choice & Production possibility curve, Opportunity cost.

Whenever a choice is made, something is given up. The opportunity cost of a choice is the value of the best alternative given up. Scarcity is the condition of not being able to have all of the goods and services one wants. The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services.

Unit 02

Demand and its determinants

The price of the good or service. The income of buyers. The prices of related goods or services—either complementary and purchased along with a particular item, or substitutes and bought instead of a product. The tastes or preferences of consumers will drive demand.

Types of demand

Demand is generally classified on the basis of various factors, such as nature of a product, usage of a product, number of consumers of a product, and suppliers of a product.

Quadrant 04: Price Elasticity of demand

The price elasticity of demand is an economic indicator of the increase in the number of commodity demands or consumption in relation to its change in price. Economists use price elasticity to explain how supply or demand changes and understand the workings of the real economy, despite price changes.

Income and cross Elasticity of demand

Income elasticity of demand – which measures how demand responds to a change in income – is always negative for an inferior good and positive for a normal good. ... Cross elasticity of demand measures the responsiveness of demand for one commodity to changes in the price of another good.

Concept of supply and law of supply

Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. The law of supply is the microeconomic law that states that all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.

Elasticity of Supply

Price elasticity of supply measures the responsiveness to the supply of a good or service after a change in its market price. According to basic economic theory, the supply of a good will increase when its price rises and vice versa.

Market equilibrium

Equilibrium is the state in which market supply and demand balance each other, and as a result, prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.

Consumer surplus and producer surplus

The difference between a consumer's marginal benefit for a unit of consumption, and what they actually pay, represents how much benefit a consumer get's from the price they are paying. Producer surplus represents the difference between the price a seller receives and their willingness to sell for each quantity.

Unit 03

Marginal utility theory

Marginal utility is the added satisfaction a consumer gets from having one more unit of a good or service. The concept of marginal utility is used by economists to determine how much of an item consumers are willing to purchase. The law of diminishing marginal utility is often used to justify progressive taxes.

Concept of indifference curve

An indifference curve is a graph showing the combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

Properties of indifference curve

The indifference curve technique has come as a handy tool in economic analysis. It has freed the theory of consumption from the unrealistic assumptions of the Marshallian utility analysis. In particular, mention may be made of consumer's equilibrium, derivation of the demand curve, and the concept of consumer's surplus.

Consumer equilibrium

Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. The point of maximum satisfaction is achieved by studying the indifference map and budget line together.

Income effect

The income effect is the change in demand for a good or service caused by a change in a consumer's purchasing power resulting from a change in real income.

Price effect

The price effect represents changes in optimal consumption combination on account of changes in relative prices. In term of indifference curves, a consumer is better-off when optimal consumption combination is located on a higher indifference curve and vice versa, as a result of relative price changes

Substitution effect

The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises

Pricing strategies

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

Pricing Policy

Pricing policy refers to how a company sets the prices of its products and services based on costs, value, demand, and competition. ... Managers also must take into account current market conditions when developing pricing strategies to ensure that the prices they choose fit market conditions.

Unit 04

Production function

Production function, in economics, an equation that expresses the relationship between the quantities of productive factors (such as labour and capital) used and the amount of product obtained.

Law of variable proportion

The law of variable proportions states that as the. quantity of one factor is increased, keeping the other. factors fixed, the marginal product of that factor will. eventually, decline.

Law of returns to scale

The law of returns to scale states that when there is a proportionate change in the amounts of inputs, output behavior also changes.

Unit 05

Cost concepts

Cost, in common usage, the monetary value of goods and services that producers and consumers purchase. In a basic economic sense, the cost is the measure of the alternative opportunities foregone in the choice of one good or activity over others.

Short run costs

The short-run cost has short-term implications in the production process, i.e. these are used over a short range of output. These are the cost incurred once and cannot be used again and again, such as payment of wages, cost of raw materials, etc.

Long run costs

Long-run costs are accumulated when firms change production levels over time in response to expected economic profits or losses. In the long run, there are no fixed factors of production. The land, labor, capital goods, and entrepreneurship all vary to reach the long-run cost of producing a good or service.

Relationship between production and cost curves

There is an inverse relationship between production and costs. The harder it is to produce something, for example, the more labor it takes, the higher the cost of producing it, and vice versa

Concept of revenue

Revenue refers to the amount received by a firm from the sale of a given quantity of a commodity in the market. Revenue is a very important concept in economic analysis. It is directly influenced by sales level, i.e., as sales increases, revenue also increases.

Concept of profit

Profit describes the financial benefit realized when the revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Profit is calculated as total revenue less total expenses.

Relation between revenue and profit

Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations. Profit, which is typically called net profit or the bottom line, is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.

Unit 06

Perfect competition

Pure or perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their products). Market share has no influence on prices.


A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. All these factors restrict the entry of other sellers into the market.

Monopolistic market

A monopolistic market is a market structure with the characteristics of a pure monopoly. A monopoly exists when one supplier provides a particular good or service to many consumers.


Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms.

Pricing policy

Pricing policy refers to how a company sets the prices of its products and services based on costs, value, demand, and competition. ... Managers also must take into account current market conditions when developing pricing strategies to ensure that the prices they choose fit market conditions.

Unit 07

Marginal productivity theory of distribution

The marginal productivity theory states that under perfect competition, the price of each factor of production will be equal to its marginal productivity. The price of the factor is determined by the industry. The firm will employ that number of a given factor at which price is equal to its marginal productivity.

Modern theory of rent

According to modern theory, economic rent is a surplus that is not peculiar to land alone. It can be a part of the income of labour, capital, entrepreneur. According to the modern version, rent is a surplus that arises due to the difference between actual earning and transfer earning.

Concept of wages

Wages refer to that payment which is made by the employers to the labourer for his services hired on the conditions of payment per hour, per day, per week or per fortnight."

Concept of Interest

In simple words, interest means the reward for the use of capital. It is also called the income of the owner of capital for lending it. In other words, it is the price paid by the borrower of money to its lender.

Quadrant 03: FAQs for Managerial Economics

Your Instructors

Swati Watts

Associate Professor

2 Courses
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4 Students
An experienced academician with a demonstrated history of working in the education management industry. Skilled in Educational Leadership, Leadership Development, Lecturing, Teaching, and Higher Education. Strong education professional with an MBE, Mphil, Ph.D. focused on Management. Worked for a number of reputed organizations and assumed key responsibility roles. Published a number of research papers in various leading publishers. Has published four patents under her name. Has been associated with a number of editorial boards, Board of Studies and Academic Council. Keen interest in contemporary economic and business affairs. Delivered keynote addresses at a large number of prestigious academic events. Capable of arousing response from a variety of audiences. She is on the mission to make this world a better place! I believe that every day is an opportunity to become creative to find new colors and paint a new day on canvas of your mind.
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