Managerial Economics

561 Pages·2016·15.792 MB·English

by  Vanita Agarwal

Managerial Economics
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VANITA AGARWAL
Lakshmibai College
University of Delhi
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Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.
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ISBN 9788131775622
eISBN 9789332514065

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To my parents
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Contents
Preface xv
About the Author xvii
1 An Introduction to Managerial Economics: Nature and Scope 1
Introduction 1
What Is Managerial Economics? 1
Differences Between Microeconomics and Macroeconomics,
and Their Relation to Managerial Economics 3
Need to Study Managerial Economics 4
Applications of Managerial Economics 5
Managerial Economics and Business Economics: Ambiguity
in the Use of the Two Terms 6
Summary • Review Questions • Answers
2 Objectives of a Business Firm, Decision Rules and the Process
of Optimization 10
Introduction 10
Objectives of a Business Firm 10
Profi t Objective 11
Profi t Theories 12
Profi t Maximization: An Algebraic Explanation 13
Other Economic Objectives of a Firm 16
Non-economic Objectives 18
Profi t: A Control Mechanism 18
Decision Rules 19
Process of Optimization 20
Summary • Review Questions • Answers
3 Demand, Elasticity of Demand and Elasticity of Supply 24
Introduction 24
Demand 25
Supply 34
Equilibrium 38
Elasticity of Demand 40
Revenue Concepts 47
Income Elasticity of Demand 51
Cross Price Elasticity of Demand 53
Advertising Elasticity 54
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| viii | Contents
Elasticity of Price Expectations 56
Elasticity of Supply 57
Summary • Review Questions • Answers
4 Demand Forecasting 68
Introduction 68
What Is Demand Forecasting? 68
Methods of Forecasting Demand 70
Conclusion 73
Summary • Review Questions • Answers
5 Cardinal Utility Approach 76
Introduction 76
Marshall’s Utility Analysis 76
What Is Utility? 76
Concept of Cardinal and Ordinal Utilities 77
Cardinal Utility Approach 77
Law of Diminishing Marginal Utility 78
Law of Equi-marginal Utility 83
Limitations of the Cardinal Utility Approach 83
Summary • Review Questions • Answers
6 Ordinal Utility Approach: Indifference Curve Theory and
Its Applications 88
Introduction 89
Assumptions of the Indifference Curve Theory 89
An Indifference Curve 90
Characteristics of an Indifference Curve 91
Exceptions: Complements and Substitutes 93
Budget Line of the Consumer 95
Shifts in the Budget Line 96
Consumer’s Equilibrium 98
Changes in the Income Level: Income Consumption Curve 99
Changes in the Price Level: Price Consumption Curve 100
Price Effect: Substitution Effect and Income Effect 103
Derivation of the Demand Curve 105
Consumer Surplus 107
Limitations of the Indifference Curve Theory 108
A Comparison of Cardinal and Ordinal Utility Approaches 109
Applications of Indifference Curve Theory 110
Summary • Review Questions • Answers
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Contents | ix |
7 Revealed Preference Theory 117
Introduction 117
What Is Revealed Preference Theory? 117
Assumptions of Revealed Preference Theory 118
A Derivation of Demand Curve 119
An Evaluation of Revealed Preference Theory 120
Summary • Review Questions • Answers
8 Production Function 124
Introduction 124
Basic Concepts 125
Production Function 126
Production: Short Run 127
Production: Long Run 129
Isoquants 130
Characteristics of Isoquants 131
Exceptions: Complements and Substitutes 132
Isocost Line 134
Equilibrium of the Producer 135
Expansion Path 138
Elasticity of Substitution 138
Economic Region of Production and Ridge Lines 139
Law of Returns to Scale 140
Summary • Review Questions • Answers
9 Cost Function 149
Introduction 149
Some Basic Cost Concepts 149
Cost Function 151
Traditional Theory of Costs 151
Long-run Cost Analysis 156
Economies and Diseconomies of Scale 158
Break-even Analysis 161
Summary • Review Questions • Answers
10 Perfect Competition 169
Introduction 169
Types of Market Structures and Pricing Decisions 169
Characteristics of Perfect Competition 170
Firm’s Revenue Curves Under Perfect Competition 171
Short-run Equilibrium of a Firm 172
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