IBS Hyderabad

MBA Program (Academic year 2022-2023)

Course Handout and Session Plan
Course Code:

Course title: Managerial Economics Semester: I

Faculty Name: Dr. Suresh KG Cabin No: D015

Consultation Hour (Day and Time): Wednesday 11 PM to 1 PM

Mobile no: 9951208410 Email: [email protected]

Course Description

This course enables the students to learn basic microeconomic concepts applicable in business decision making. The students will learn the basic concepts
of economics like production possibility curve, basic economic problems and, partial and general equilibrium models. Students will be exposed to
consumers purchasing and budgeting decision making in various markets and how supply and demand of goods affects the market equilibrium. Students
will learn to use price floor and price ceiling to predict when government intervenes in the market and the implications of government intervention on
firms. Students will understand how production decisions are taken on short term and long term and how to identify the least cost combination of input to
minimize the cost of the firm. The course will expose the students to firm decision making in various forms of markets like Monopoly, Perfect competition,
Monopolistic Competition and Oligopoly. Various types of pricing strategies in different types of markets are also covered in this course. Students will
learn the basics of Game theory to make strategic decision making. The course will conclude by exposing the students to various types of externalities and
reasons for market failure, and the need for regulations in the economy.

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Course Objectives:

At the end of the course, students are expected to:

• Demonstrate managerial skills and competencies required to take business decisions based on the basic microeconomic concepts

• Demonstrate problem solving ability to improve the performance of Individual firms by analyzing the microeconomic environment of the firm

• Analyze and predict the behavior of competitors to take strategic decisions to improve the performance of the firm in the long run

• Demonstrate leadership skills using problem solving skills and sound knowledge on key microeconomic concepts.

Expected Learning Outcomes:

At the end of the course, the student will be able to:

• Take business decisions based on the key concepts of Managerial economics

• Students will define firm level business problems and will find solutions to the problem based on key managerial economic concepts and critical
thinking
• Students will be able to understand the market mechanism by analyzing the interplay between demand and supply forces
• Students will be able to understand the various ways to reduce cost of production by identifying the least cost combination of inputs using the
theory of production.
• Students will be able to evaluate and compare various types of market structure and will be able to take production and pricing decisions in various
types of markets.

Recommended Text Book:

• Managerial Economics: Principles and WorldWide Applications, Dominick. Salvatore and Siddhartha K. Rastogi, 9th Edition, Oxford University
Press (latest Edition).

Suggested books:
• Economics (2010): Paul A Samuelson and William D Nordhaus (Indian Adaptation by Sudip Chaudhuri and Anindya Sen) 19 th edition, McGraw
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 Hill Education (India) Private Limited, New Delhi
• Microeconomics: Robert S. Pindyck, D Rubinfeld & PL Mehta, 7th Edition, Pearson Prentice Hall, New Delhi

Additional readings
Online resources: Microeconomics: David Besanko & Ronald Braeutigam

Session Plan
Key Concepts Learning outcomes Online Chapter
Case Study resource/games Reading
Session Topic
Title in Text
Book
1 Introduction Scarcity and efficiency, free How do Page no 5-
to goods, economic goods, • To understand what managerial economics is all about Theatres sell 10, 24-
Managerial Choice, Opportunity cost, popcorn at 25,69
• To understand the scope of managerial economics and
Economics, Partial equilibrium and general higher prices
how it is interlinked with other disciplines such as
Partial and equilibrium and the illusion
business strategy, marketing etc.
general of scarcity
• To comprehend how key economic concepts (scarcity,
equilibrium, Video link:
choices, opportunity cost, economic agents. difference of
Microecono https://www.you
mics and micro and macroeconomics, partial and general tube.com/watch
equilibrium) linked with day to day managerial decisions
Macroecono ?v=33aaQdtD20
mics k
2 Three The central problems of an • To comprehend how the central Switzerland, Why Cuban cab Page no 55
economic economy: what, how and whom problems of an economy are important Cuba and India: drivers earn
problems, The Troika of
for classification of different economic more than
Production Economic doctors
systems
Possibility Problems in Video link:
Frontier, Three https://www.yo
• To understand how decisions are made
shifts in Economies utube.com/wat
Production within the economy (in different (ME003)
ch?v=n-
Possibility economic systems: Market Economy.
mUZRP-fpo
3
 Frontier Command economy and Mixed
economy) about what, how, and for
whom to produce

3 Demand Definition of demand, Law of • To realize the need to study the The Economics
demand and its exceptions, relationship between price and quantity of Uber Page no
factors affecting demand curve, demanded https://www.yo 42-45, 118-
utube.com/wat 125
Movement along the demand
curve, shift in the demand • To recognize the importance of ceteris ch?v=jzFTwB
curve, Individual demand paribus principle in establishing the kIC5o
(Firm) and market demand functional relationship between price
(Industry) and quantity demanded

• To understand the functional

relationship between the price and
quantity demanded

• To describe the factors affecting

demand curve

• To assess the impact of change in the

price on the demand curve

• To assess the impact of other factors on

the demand curve

4 Shift in Global
Steel Demand:
Impact on
ArcelorMittal
Case Code:
ECON084

4
5 Supply Definition of supply, Law of • To understand and establish the
supply, Factors affecting functional relationship between price Page no
supply, movement along the and quantity supplied 12-20, 45-
supply curve and shift in the 47
supply curve, individual (firm) • To recognize the importance of ceteris
supply and market supply
paribus principle in establishing the
(Industry)
functional relationship between price
and quantity supplied

• To identify the factors affecting Supply

curve

• To assess the impact of change in the

price on the Supply curve

• To assess the impact of other factors on

the Supply curve

6 Market Concept of market equilibrium, • To understand price determination in a Page no

equilibrium, equilibrium price and quantity, market and show how market 47-54, 55-
Price floor, Price ceiling, Price floor. equilibrium changes in response to 60
price ceiling
changes in determinants of demand and
supply.

• To understand how government actions

such as taxes, price floors, and price
ceilings impact the functioning of a
market

• To comprehend the outcomes of

market intervention

5
7 Electricity
Sector in India:
Coping with
Changes in
Demand and
Supply
Case Code:
ECON087
8 Elasticity Concepts of elasticity, Degrees • To understand the significance of the
of demand of elasticities, price elasticity of concept of demand elasticity in pricing Page no
and Supply demand, income elasticity of decisions and supply elasticity in case 127-143
demand, cross price elasticity of
of supply of goods in the market
demand and price elasticity of
supply Relationship of Revenue
• To understand the linkage between
and elasticity
elasticity and revenue and apply it in
managerial decision making (eg.
pricing decisions etc.)

• To recognize how the concept of

demand elasticity and supply elasticity
would influence the policy makers in
terms of imposition of taxes

9 Economics of
Apple, Inc.`s
iPhone
(ECON069)

6
10 Consumer Utility, Cardinal Approach, law • To understand the meaning of Utility, Video: Law of Supplemen
Behavior: of Diminishing Marginal utility function, diminishing marginal Diminishing tary
cardinal Utility, Consumer surplus utility, Marginal Material
Approach Utility.wmv - (soft copy)
• To understand the relationship between YouTube
total utility and marginal utility, law of
equal marginal utility

• To recognize and establish the

relationship between utility and law of
demand

11 Test-1: Objective Test (MCQs)

12 Consumer Meaning of Indifference curve, • To analyze how consumer on the basis Behavioral
behavior: features of Indifference curves, of ranking /preferences will choose Economics and Page no
Ordinal Budget constraints and shifts in goods Starbucks’ 158-163
Approach, the budget line Cup Problem
Indifference • To recognize the importance of budget Case Code:
Curve constraint in determination of ECON045
analysis, consumer equilibrium
13 Price effect Price Effect: Combination of • To understand an alternative approach Page no
Substitution and income effect to measurement of utility 120, 160-
163
• To comprehend and apply the essence
of cardinal and ordinal approach in
terms of substitution and income effect

• To distinguish between price effect and

price elasticity and income effect and
income elasticity
14 Production Production function, law of • To get an idea or knowledge of Page no
Function diminishing returns, output different types of factor inputs and the 258-269
elasticity, marginal product,
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 average product. process of production

• To understand the functional

relationship between output and factor
inputs in the short run

• To understand the nature of returns to

variable with the help of short run
production function

• To establish the relationship between

total product, marginal product and
average product.

• To differentiate different stages of

production in the short run

15 Production The principle of marginal rate • To understand the difference between

Function: of technical substitution, short run production and long run Page no
Returns to isoquant, isocost-line, production function 269-277,
Scale expansion path, returns to scale • To understand the functional 281-284.
relationship between output and factor
inputs in the long run
• To analyze the nature of returns to
scale when all the inputs varied
• To comprehend how a rational
producer would achieve the objective
of maximization of output subject to
cost constraint with the help of
isoquants
16 Gujarat Ambuja:
Cost leader in
the Indian
Cement Industry
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 (OPEA002)

17 Costs in the Types of costs: Marginal cost, • To understand the meaning of cost and Behind the Page no
Short run Sunk cost, Implicit costs, its functional relationship with Cloud: Cloud 70-78,308-
explicit costs, opportunity costs, production function Economics 325, 332-
economic costs, accounting https://www.yo 334, 337-
costs, • To understand the basic difference utube.com/wat 343
between accounting cost and economic ch?v=Va9fIF5
cost nvKk

• To understand the relevance of costs in

managerial decision making

Class Participation Evaluation -1

18 Costs in the Break-even point, shut-down • To understand the concepts of Business How Budget
Long run point economies of scale, economies and diseconomies of scale Viability of Dish Airlines Work Page no
diseconomies of scale, and the relationship to the concept of TV (ME0016) Video link: 281-284,
economies of scope, learning return to scale https://www.yo 308-
curve utube.com/wat 324,332-
• To understand the significance of ch?v=069y1M 335, 419-
economies of scope and learning by pOkQY 421
doing ( the learning curve)
19 Markets- Perfect competition, features. • To understand the basics of market
perfect demand curve, firms demand morphology Page no
Competition curve and industry demand • To understand the role of seller in an 362-366
curve competitive environment
Equilibrium conditions • To recognize the parameters to
classify markets as perfect competition
and imperfect competition

20 Markets- Price and output determination • To understand the what will be the Game : Perfect
Perfect both in the short run and long nature of profit if all the conditions of competition Page no
Competition run Concept of Allocative perfect competition will prevail in the simulation: 367-377

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 efficiency Government market https://otree2.e
intervention in markets conomics-
• To understand the purpose of allocative games.com/p/y
efficiency vic9vbq/perf_c
omp/Decision1
• To comprehend what are the conditions /2/
which will ensure allocative efficiency
21 Markets – Features of Monopoly – sources • To understand the features of Game:
Monopoly of monopoly and measurement Monopoly Monopoly Page no
of monopoly Demand curve, • To identify the sources of monopoly simulation: 377-379
equilibrium conditions • To measure the extent of monopoly https://otree2.e
with the help of HHI and concentration conomics-
ratio games.com/p/1
xx98v4o/mono
poly/Decision1
/2/
22 Test 2-Written test
23 Markets - Price and output determination • To understand equilibrium both in the Game: Price
Monopoly both in the short run and long short run and long run discrimination, Page no
run,Three degrees of price • To understand the necessary vertical 379-385,
discrimination, the concept of conditions for price discrimination differentiation 483-487,
dead weight loss • To understand the economic logic and peak-load 499-507
behind Price discrimination pricing
• To understand the concept of Dead https://econom
weight loss, the social cost of
ics-
monopoly power
games.com/ga
• To compare and contrast features of
perfect competition and Monopoly me/slide/10001
001012010
24 Spotify – Price
Discrimination
ECON085
25 Monopolisti Features of Monopolistic • To identify the similarities and
c competition, demand curve, dissimilarities with perfect competition Page no
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 competition equilibrium conditions, price and monopoly. 386-391
and output determination both • To understand the significance of
in the short run and long run selling costs which contribute to
product differentiation
26 Gujarat
Newspaper
industry
27 Oligopoly- Features of oligopoly, types of • To understand the extent of monopoly Why Airbus
Oligopoly Collusive and non- power in oligopoly market And Boeing Page no
collusive Oligopoly, Kinked • To recognize how the monopoly power Dominate The 401-412
Demand curve, from single hand moves to few hands Sky
Video link:
• To observe and understand the reasons https://www.yo
for price rigidity in such markets utube.com/wat
• To understand the underlying reason ch?v=2zaUOU
as why firms, choose to collude or do iNjJY
not collude
• To understand that the firms are
mutually interdependent

28 Price Low-cost firm price leadership, • To comprehend the importance of

Leadership dominant firm price leader ship average cost principle in oligopoly Page no
& cartels and barometric price leadership market 412-416
• To understand the process of how price
is fixed or accepted in such markets.
• To analyze how cost of production
will determine the profits or loss
• How price and output is determined in
duopoly

29
The Indian
Cement Industry
Cartelization: A

11
 Bumpy Ride
Ahead?

ECON096

30 Game Basics of game theory, • To understand the relevance of game

theory Dominant Strategies, Nash theory in economic theory Page no
Equilibrium, Threats, 449-463
Commitments and Credibility, • To describe the concepts related to
Entry deterrence game theory and their application

31 AIRBUS 350 vs
BOEING 787:
Battle for skies
(COM0167B)
32 Positive and negative • To analyze how externalities, market Externalities: A Market for
Externalities Externalities - Market Failure power, asymmetric Information, and Justification for Lemons: George
and Government Intervention; principal agent problems leads to Public Goods? Akerlof,
Asymmetric Information, Moral (ME0004) Information
market failure
Hazard, Market Signaling Asymmetry,
Imperfect
• To understand the relevance of
Information &
regulatory bodies for market Market Failures
correction. Video:
https://www.yo
utube.com/wat
ch?v=tyzf3T2 Page no
LASs 528-541
33 Group Project presentations, discussions and evaluation & Class Participation Evaluation

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Evaluation Timelines

Keeping in line with continuous evaluation at IBS the following schedules have been drawn. Students are expected to go through the dates /
sessions mentioned and prepare accordingly.

Component Component Expected slot / due date Weightage (%)

Number
Class Participation Evaluation 1 Session 17 5
Class Participation Evaluation 2 Session 33 5
Test-1 Objective test (MCQs) 1 Session 11 15
Test-2 Objective test (MCQs) 2 Session 22 20
Test-3 Project 3 Project report submission on or before 20th 15
September 2022 and thereafter presentation
End term examination At the end of the semester 40
Total 100

Expectations from Students

a. Students must report to the respective sessions well before the announced time. Latecomers will not be permitted to join the class after the
scheduled time. If late, the attendance for that session will be marked as absent.
b. Read the Case Study / material well prior to the class discussion. He/she is also expected to read the chapter indicated in the course plan as the
faculty directs.

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 c. In the class discussion student is expected to participate actively and contribute to individual and group learning. Evaluation is based on active
participation.
d. Evaluation is a continuous process at IBS. Every student needs to be aware of the timelines given in the section below. Absence from these
evaluations will mean non awarding of marks in that particular component
e. Wherever applicable, group assignments require each student to contribute to the group effort. This enhances group effectiveness and leads to
greater appreciation of working in groups.
f. Formal dressing is suggested for all students. Do not roam in the academic area/ attend classes in chappals / shorts / informal t-shirts.
g. Students are expected to show high regard and appreciation for in class discipline and desist from using mobile phones. This disturbs the class
ambience and unnecessarily diverts attention of other students as well as the faculty member.
h. Each faculty has been given a scheduled consultation hour. Utilize this time to meet the faculty and clarify doubts if any, seek explanations and get
mentored if needed.
i. Attendance is compulsory in all sessions. However, refer to guidelines in your academic handbook for exceptions.

About the Faculty

Dr.Suresh K. G. is currently working as Associate Professor in Dept of Economics at IBS- Hyderabad. He has five years of teaching experience in the
area of Economics and presently he teaches Managerial Economics and Macroeconomics on the MBA program and Advanced Macroeconomics on
the Ph.D program. . His research interests include South-South and South-North trade, Exchange rate and trade and Spillover effects of FDI etc. He
has published several articles in reputed national and international journals like Economic and Political Weekly (EPW), Economic Modelling, Current
issues in tourism, Journal of Economic Studies, Journal of Quantitative Economics etc. His articles on current economic issues appeared in popular
national dailies like The Hindu Businessline and Economic Times.

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