ECONOMICS FOR MANAGERIAL DECISION MAKING-1

(ECONOMIC ANALYSIS SIMPLIFIED FOR YOU)

1. ESSENCE OF ECONOMICS
Problems of an economy; solutions of these problems; alternative system to tackle the
problems; economics, micro – economics & macro – economics; basis building blocks of
microeconomics – rationality, marginalism, opportunity cost, general & partial
equilibrium.

2. FALLACIES AND PITFALLS

Economics is about decision making, fallacies in decision making, fallacy of assumption,
fallacy of composition, fallacy of subjectivity, fallacy of post hoc proctor hoc, fallacy of
syllogism, fallacy of black & white or gray; fallacy of broken window, lessons for firm.

3. DEMAND ANALYSIS AND CONSUMER BEHAVIOUR

3.1DEMAND ANALYSIS
Concept of demand & demand functions; demand schedule & demand curve; types of
demand; kinds of demand; factors influencing demand; expansion / contraction of
demand vs. increase / decrease in demand, significance of demand analysis for the firm.

3.2 ELASTICITY OF DEMAND

Concept of elasticity, price elasticity of demand; meaning, values, determinants,
measurement & implications; slope vs. elasticity; TR, TE & eDP, AR, MR & eDP,
strategies to maximize total revenues, cross elasticity of demand; income elasticity of
demand: meaning values & measurement; income elasticity vs. income sensitivity;
advertising elasticity of demand; significance of the concept of elasticity of demand for
the firm.

3.3 UTILITY ANALYSIS

Consumer behaviour, choice & utility; concept of TU, MU & AU; LDMU; LEMU;
equilibrium of a consumer; explanation of falling demand; income, substitution, & price
effects & consumer choices; paradox of value; consumer surplus; significance for a
seller.

3.4 INDIFFERENCE CURVE ANALYSIS

Meaning; kinds; properties; inference map; budget line; equilibrium; applications of ICA.

4. SUPPLY ANALYSIS & PRICE FORMATION

4.1 SUPPLY ANALYSIS

Concept; types; factors dictating supply; supply curve & supply schedule; law of supply;
expansion / contraction of supply vs. increase / decrease in supply

4.2. ELASTICITY OF SUPPLY

Concept; values; measurement; determinants; implications for the suppliers
4.3 EQUILIBRIUM AND PRICE MAKING
Concept of equilibrium; shifts in demand & supply & impact on price & quantity; price
as allocating device for resources through surplus & scarcities; alternative nodes of price
fixation.

5. PRODUCTION AND COST ANALYSIS

• Concept of production & production function; LR & VR; LVP; relationship
between TP, MP, and AP, stages of production, concept of returns to scale & laws of
returns, impact of technological change on return, concept of Isoquant, isocost lines
& equilibrium; equilibrium under cost constraint & for a given output; economic
region of production; expansion path.

• Concept of cost; linkage between production & cost; cost classification. TC, AC,
& MC and their relationship; cost curve under SR & LR; Economies of scale;
economies of scope; implications for a firm; existence of small firms; engineering
cost curves.

6. REVENUE CURVES AND FIRM’S EQUILIBRIUM

Concepts of TR, AR and MR; cost, revenue and equilibrium of a firm; equilibrium under
alternative assumptions about firm’s objective functions.

7. PERFECT COMPETITION
Meaning and characteristics; SR equilibrium, break – even analysis and shut down point,
long run equilibrium; supply curve for a competitive firm – LR (horizontal, rising or
falling) and short run; efficiency of competitive markets; advantages of perfect
competition; disadvantages of a competitive firm.

8. MONOPOLY
Concepts; source of monopoly power; measure of monopoly power; cost, revenue and
equilibrium under monopoly; supply curve of a monopolist; shifts in demand and impact
on monopoly firm; advantages and disadvantages of monopoly; monopoly vs. perfect
competition.
Price discrimination: meaning, conditions; types; equilibrium
Monopsony
Bilateral monopoly

9. MONOPOLISTIC COMPETITION
Meaning and characteristics; equilibrium of a firm in short run and in long run; sources of
differentiation; promotional costs and equilibrium.

10. OLIGOPOLY
Meaning; characteristics; Cournot’s model; kinked demand curve model; price leadership
model; cartels; game theory treatment of oligopoly.
IMPORTANT NOTE
The treatment of the subject shall be non mathematical Emphasis, while teaching, will be on
application of economics principle to the behaviour of the players in Indian Market.

Reference books
• Prasoon Majumder: Economic Analysis Simplified for You (IIPM/Vikas:2010):
All chapters