This document provides an introduction to a Managerial Economics course taught by Krishnamurthy Bindumadhavan at BITS Pilani. It includes an overview of the course content which leverages economic analysis and tools to help managers make optimal business decisions. The course objectives are to gain insights into economic methods and concepts and apply them to business decisions using case studies, simulations, and examples. The evaluation scheme and expectations are also outlined.
Prisoner's Dilemma is a paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.
In this session, we will be looking at The Prisoner's Dilemma and how it affects our decision making, group and team dynamics, business decisions. We'll look at real world case studies and nature with a goal of understanding this dilemma better.
This presentation about game theory particularly two players zero sum game for under graduate students in engineering program. It is part of operations research subject.
Prisoner's Dilemma is a paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.
In this session, we will be looking at The Prisoner's Dilemma and how it affects our decision making, group and team dynamics, business decisions. We'll look at real world case studies and nature with a goal of understanding this dilemma better.
This presentation about game theory particularly two players zero sum game for under graduate students in engineering program. It is part of operations research subject.
GAME THEORY
Terminology
Example : Game with Saddle point
Dominance Rules: (Theory-Example)
Arithmetic method – Example
Algebraic method - Example
Matrix method - Example
Graphical method - Example
Game theory is the study of mathematical models of strategic interaction between rational decision-makers.The mathematical theory of games was invented by John von Neumann and Oskar Morgenstern (1944). For reasons to be discussed later, limitations in their mathematical framework initially made the theory applicable only under special and limited conditions.Increasingly, companies are utilizing the science of Game Theory to help them make high risk/high reward strategic decisions in highly competitive markets and situations. ... Said another way, each decision maker is a player in the game of business.
This is a managerial economics presentation on "Game Theory: Prisoners Dilemma" , presented by myself Peerzada Basim. I am a Business student pursuing IMBA degree at University of Kashmir.
I hope this presentation will suffice your need and curiosity of knowing what Game Theory is.
Thank you.
Optimizing Business Decisions: Managerial Economics InsightsAniketSingh222612
In today's fiercely competitive business landscape, organizations strive for sustainable growth and profitability. Managerial economics, a vital branch of economics, offers invaluable insights and analytical tools to aid decision-making processes within firms. This presentation delves into the intricate realm of managerial economics, exploring its principles, applications, and significance in contemporary business management.
At its core, managerial economics blends economic theory with managerial practice, providing a framework to analyze and address real-world business challenges. Through a synthesis of microeconomic concepts and strategic management principles, it equips managers with the ability to make informed decisions amidst uncertainty and dynamic market conditions.
The presentation begins by elucidating the fundamental principles of managerial economics, emphasizing concepts such as demand analysis, production and cost theory, market structures, and pricing strategies. By understanding consumer behavior and market dynamics, managers can tailor their strategies to maximize revenue and enhance market share.
Furthermore, the discussion delves into the role of managerial economics in optimizing production processes and resource allocation. Through the application of techniques like marginal analysis, cost-benefit analysis, and optimization models, firms can streamline operations, minimize costs, and improve efficiency, thereby gaining a competitive edge in the marketplace.
Moreover, the presentation underscores the significance of managerial economics in strategic decision-making. Whether it's evaluating investment opportunities, formulating pricing strategies, or assessing competitive positioning, managers rely on economic principles to navigate complex business scenarios and chart a course for sustainable growth.
Additionally, the presentation sheds light on how managerial economics guides managerial decisions in the face of external factors such as government regulations, market fluctuations, and technological advancements. By anticipating and adapting to changing economic conditions, firms can mitigate risks and capitalize on emerging opportunities.
Furthermore, the presentation examines the ethical dimensions of managerial decision-making within the context of managerial economics. While maximizing shareholder value is often a primary objective, managers must also consider broader stakeholder interests and societal welfare, striking a balance between profitability and corporate social responsibility.
In conclusion, this presentation underscores the pivotal role of managerial economics in shaping strategic decisions and driving organizational success. By leveraging economic principles and analytical tools, managers can navigate complexities, mitigate risks, and capitalize on opportunities in an ever-evolving business environment. Embracing the insights offered by managerial economics empowers firms to achieve their objectives whi
GAME THEORY
Terminology
Example : Game with Saddle point
Dominance Rules: (Theory-Example)
Arithmetic method – Example
Algebraic method - Example
Matrix method - Example
Graphical method - Example
Game theory is the study of mathematical models of strategic interaction between rational decision-makers.The mathematical theory of games was invented by John von Neumann and Oskar Morgenstern (1944). For reasons to be discussed later, limitations in their mathematical framework initially made the theory applicable only under special and limited conditions.Increasingly, companies are utilizing the science of Game Theory to help them make high risk/high reward strategic decisions in highly competitive markets and situations. ... Said another way, each decision maker is a player in the game of business.
This is a managerial economics presentation on "Game Theory: Prisoners Dilemma" , presented by myself Peerzada Basim. I am a Business student pursuing IMBA degree at University of Kashmir.
I hope this presentation will suffice your need and curiosity of knowing what Game Theory is.
Thank you.
Optimizing Business Decisions: Managerial Economics InsightsAniketSingh222612
In today's fiercely competitive business landscape, organizations strive for sustainable growth and profitability. Managerial economics, a vital branch of economics, offers invaluable insights and analytical tools to aid decision-making processes within firms. This presentation delves into the intricate realm of managerial economics, exploring its principles, applications, and significance in contemporary business management.
At its core, managerial economics blends economic theory with managerial practice, providing a framework to analyze and address real-world business challenges. Through a synthesis of microeconomic concepts and strategic management principles, it equips managers with the ability to make informed decisions amidst uncertainty and dynamic market conditions.
The presentation begins by elucidating the fundamental principles of managerial economics, emphasizing concepts such as demand analysis, production and cost theory, market structures, and pricing strategies. By understanding consumer behavior and market dynamics, managers can tailor their strategies to maximize revenue and enhance market share.
Furthermore, the discussion delves into the role of managerial economics in optimizing production processes and resource allocation. Through the application of techniques like marginal analysis, cost-benefit analysis, and optimization models, firms can streamline operations, minimize costs, and improve efficiency, thereby gaining a competitive edge in the marketplace.
Moreover, the presentation underscores the significance of managerial economics in strategic decision-making. Whether it's evaluating investment opportunities, formulating pricing strategies, or assessing competitive positioning, managers rely on economic principles to navigate complex business scenarios and chart a course for sustainable growth.
Additionally, the presentation sheds light on how managerial economics guides managerial decisions in the face of external factors such as government regulations, market fluctuations, and technological advancements. By anticipating and adapting to changing economic conditions, firms can mitigate risks and capitalize on emerging opportunities.
Furthermore, the presentation examines the ethical dimensions of managerial decision-making within the context of managerial economics. While maximizing shareholder value is often a primary objective, managers must also consider broader stakeholder interests and societal welfare, striking a balance between profitability and corporate social responsibility.
In conclusion, this presentation underscores the pivotal role of managerial economics in shaping strategic decisions and driving organizational success. By leveraging economic principles and analytical tools, managers can navigate complexities, mitigate risks, and capitalize on opportunities in an ever-evolving business environment. Embracing the insights offered by managerial economics empowers firms to achieve their objectives whi
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Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
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Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
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Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
3. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Agenda
• Introductions
• Flipped classroom
• Course objectives
• Textbooks/ Resources
• Evaluation scheme
• Overview of Managerial Economics
4. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Introductions – Lead Instructor
Krishnamurthy Bindumadhavan, CFA, FRM
• Bachelor of Engineering, MBA
• Received the CFA charter in 2002
• Awarded FRM title in 2008
• Worked for over 7 years as Senior Analyst/ Consultant to leading Corporations,
Banks; preparing candidates for CFA/ FRM exams
• Worked for 8 years at Capital One, a top 10 US bank and one of the World’s
largest diversified financial services firms
• Worked in both strategic roles as well as operational roles including credit
strategy, product strategy and risk operations
• Drove innovation in risk management to add value of over $50 Million
• Last assignment with Capital One was General Manager, Risk Operations, Asia
• 5+ years of prior experience in Banking technology, primarily with TCS/ TUL
5. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Flipped Classroom
Week before
class
•Replay recorded lectures
•Review relevant study materials/ pre-class assignments
•Case study (if applicable)
In “Live”
Class
•Review important and advanced/ difficult concepts
•Active Learning - Application/ Problem solving
•Experiential learning – Excel modelling, Case study discussion,
Simulation
After Class
•Active learning - problem solving
•Discussion forums
•Peer learning
6. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Course Objectives
No Course Objectives
CO1 Gain insights into the scientific and analytical methods, techniques
and tools of economics.
CO2 Gain basic understanding of the underlying concepts and building
blocks related to managerial Economics.
CO3 Understand the application of these concepts in business and
economic policy using suitable examples, case studies, simulation,
etc.
7. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Textbook/ Resources
T1 Truett & Truett, "Managerial Economics", John Wiley & Sons, 8th edition,
, 2004
R1 Samuelson & Nordhus, "Economics", Tata McGraw-Hill Edition, 16th
edition, , 1998
R2 Petersen, Lewis and Jain, “Managerial Economics”, Pearson Education, ,
2006.
R3 Hirschey, “Economics for Managers”, Thompson, , 2006
R4 Suma Damodaran, "Managerial Economics", Press, 2006
8. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Evaluation Scheme
No Name Type Duration Weight
EC-1 Quiz-I Online - 5%
Quiz-II Online - 5%
Quiz-III Online - 5%
EC-2 Mid-Semester Test Closed Book 2 hours 35%
EC-3 Comprehensive Exam Open Book 3 hours 50%
9. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Introduction
Managerial Economics (MBAZC416)
Fundamental Questions
–What is Managerial Economics?
–Why Managerial Economics?
–What kind of issues does it help
address?
–How can it help managers to make
better decisions?
10. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Fundamental economic problems
• Three questions that managers face:
– What to produce?
– How to produce?
– How to distribute?
• Scarcity of resources
• How does economics answer these questions?
Managerial Economics (MBAZC416)
11. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Managerial economics
Managerial Economics (MBAZC416)
Definition
Managerial Economics: the
application of economic theory and
methods to business decision-making.
Business: Any situation where there is a
transaction between two or more
parties
12. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Relationship with economic theory
Managerial Economics (MBAZC416)
• Microeconomics
– Focuses on individual consumers and firms
– Theory of the firm
– Theory of consumer behaviour (demand)
– Production and cost theory (supply)
– Price theory
– Market structure and competition theory
• Macroeconomics
– Aggregate variables such as GDP, GNP,
Unemployment, Inflation, etc.
13. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Managerial Economics: How is it useful?
Managerial Economics (MBAZC416)
• While economics attempts to describe how
the economy works, managerial economics
speaks to how the economy should work!
• It prescribes rules for improving managerial
decisions
• It helps managers recognize how economic
forces affect organizations
• It links economic concepts with quantitative
methods to develop vital tools for managerial
decision making
14. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Managerial Economics: aToolfor
ImprovingManagementDecisionMaking
Managerial Economics (MBAZC416)
15. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
What is the best “choice”
Managerial Economics (MBAZC416)
• Understand the economic environment in which firms operate
– We will be exploring several case studies throughout the course
• Consider alternatives
• Make optimal choices to maximize
Profit
Market share
Managerial interests
Government influence
National interests
Social and environmental benefits
16. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
The Decision-Making Process
Managerial Economics (MBAZC416)
17. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Summary
• Managerial Economics helps business leaders and policy
makers to make optimal decisions
• Leverages economic analysis for concepts such as
demand, cost, production, profit and competition
• Bridges the gap between theory and practice
• Provides tool sets to make optimal decisions
Managerial Economics (MBAZC416)
18. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Application of concepts using Case Studies
Managerial Economics (MBAZC416)
• Multinational production and pricing
– How does Ford or GM decide where to produce its cars
(multinational factory locations) and where to sell
(multinational markets)
• Market Entry
– How do major bookstores decide where to set up shop,
assess demand and profitability, assess and react to
threats from online stores
• R & D Decisions
– How does a pharma company decide whether to invest
in traditional biochemistry based research or to pursue
biogenetic approaches (such as gene splicing)
22. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Agenda
• Introductions
• Flipped classroom
• Course objectives
• Textbooks/ Resources
• Evaluation scheme
• Overview of Managerial Economics
23. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Positive and Normative economics
Managerial Economics (MBAZC416)
• This is also referred to as is/ought
distinction
• Positive statements
– Factual statements
– It can be verified by empirical study or logic
• Normative statements
– Value judgements
– It can’t be verified by empirical study or logic
• Relevance of the distinction to the study of
managerial economics
24. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Opportunity costs
Managerial Economics (MBAZC416)
• Scarcity and choice are central to the
economics discipline
• In the face of scarcity, we make many
decisions
• Follow one course of action and forgo some
other course of action
Opportunity cost is the highest valued
alternative forgone whenever a choice is
made
25. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Definitions of Profit
• Business or Accounting Profit: Total revenue minus the
explicit or accounting costs of production.
• Economic Profit: Total revenue minus the explicit and
implicit costs of production.
• Opportunity Cost: Implicit value of a resource in its best
alternative use.
Managerial Economics (MBAZC416)
26. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Theories of Profit
• Risk-Bearing Theories of Profit
• Frictional Theory of Profit
• Monopoly Theory of Profit
• Innovation Theory of Profit
• Managerial Efficiency Theory of Profit
Managerial Economics (MBAZC416)
27. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Social Function of Profit
• Profit is a signal that guides the allocation of society’s
resources.
• High profits in an industry are a signal that buyers want
more of what the industry produces.
• Low (or negative) profits in an industry are a signal that
buyers want less of what the industry produces.
Managerial Economics (MBAZC416)
28. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Ten Economic Principles for
managers
1. Making optimal decisions
2. Decisions are always among alternatives
3. Decision alternatives always have costs and benefits
4. Objective is to increase the firm’s value
5. Firm’s value is measured by its expected profit
6. Firm’s sales revenue depends on demand for its product
7. The firm must minimize cost for each level of output
8. The firm must develop a strategy consistent with its market
9. Growth depends on rational investment decisions
10. Firms deal rationally and ethically with laws and regulations
Managerial Economics (MBAZC416)
29. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
1. Making decisions
Managerial Economics (MBAZC416)
29
• The role of the managers is to make
decisions
– Business firms come in all sizes
– No firm has unlimited resources
– Short-run and long-run decisions
• Managerial Economics: How to make
decisions that make sense for the
operation of the firm
30. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
2. Decisions are among alternatives
Managerial Economics (MBAZC416)
30
• Choices are always among alternatives
• Example-buying a new computer
• A job can be done by many, but some may
be better at it than others-cost differs
31. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
3. Decision alternatives have costs and benefits
Managerial Economics (MBAZC416)
31
• Working Vs. Pursuing further studies
• What we consider when making our decisions?
• Benefits: benefit gained from studying – enhanced knowledge
and capabilities, which lead to better career opportunities in
the future
• Cost - cost of giving up short term promotions and increments
• Choosing to study- additional benefit gained from further
studies exceeds the additional cost
• Opportunity cost
32. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
4. Objective of management is to
increase the firm’s value
Managerial Economics (MBAZC416)
32
• Profit is the difference between TR and TC
• Different types of organizations/ firms
• Problem - Managers attempt to maximize own interest
while shareholders increase own benefit
• Principal –agent problem
33. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
5. The firm’s value is measured by
its expected profit
Managerial Economics (MBAZC416)
• Example: consider two companies using different
production process
• Which one would be the better company?
• This can be easily evaluated based on excepted profits
• Present value of the expected future profit stream
34. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
6. Firm’s sales revenue depends on
demand for its product
Managerial Economics (MBAZC416)
• Some goods are highly price sensitive while other goods
are less price sensitive
• Demand for a product is a function of a number of factors
in addition to price
35. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
7. Firm must minimize cost for each
level of output
Managerial Economics (MBAZC416)
• TR - TC
• Important factors:
– Technology of production
– Input prices
– Factors of production
– Different levels of technologies
36. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
8. Firm must develop a strategy consistent
with its market
Managerial Economics (MBAZC416)
• We will study the various market structures and the
appropriate strategy for each of these situations
• Selling identical products
• Differentiated products
• Example - airline industry, software industry, etc.
37. Value of the Firm
The present value of all expected future profits
37
Managerial Economics (MBAZC416)
38. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
9. Firm’s growth depends on
rational investment
Managerial Economics (MBAZC416)
• Decision to invest in new plant or equipment or develop a
new product
• The process of evaluating new investments of the firm-
capital project analysis or capital budgetting
• Capital project - calculating the expected stream of
benefits it will produce for the firm
39. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
10. Successful firms deal rationally and
ethically with laws and regulations
Managerial Economics (MBAZC416)
• Various business laws and regulations
• Case of Enron or closer hope the collapse of Satyam
highlight the consequences of unethical behaviour
40. BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Expectations
• Replay prerecorded digital content before class
• Attend all “live” classes else replay recordings
• Review the relevant chapters from textbook before and after
class
• Do the homework and assignments in a timely manner
• Make sure you have access to laptop/ computer with Excel;
we will need it for experiential learning components in
subsequent classes. (Excel 2007 or later versions preferred.)