Maharishi School of Business Management
Department of Management
Programme: BBA Semester: I
Course Name: Managerial Economics Course Code:BBA102
Session: 2025-26
UNIT-1
1. Nature, Scope, and Uses of Managerial Economics
Nature of Managerial Economics
Managerial Economics is a branch of economics that deals with the application of economic
concepts, theories, and methodologies to solve practical problems in business management.
• Microeconomic in nature – Focuses on individual firms and consumers rather than
the economy as a whole.
• Normative economics – Prescribes what a firm should do to achieve its objectives.
• Pragmatic – Emphasizes real-world applications and decisions.
• Multidisciplinary – Integrates tools from mathematics, statistics, accounting, and
operations research.
Scope of Managerial Economics
1. Demand Analysis and Forecasting
o Helps firms understand consumer demand and forecast future sales.
2. Cost and Production Analysis
o Involves cost estimation, cost control, and understanding cost behavior.
3. Pricing Decisions
o Determining optimal pricing strategies in different market conditions.
4. Profit Management
o Analyzing ways to maximize profits and ensure sustainability.
, 5. Capital Management
o Decisions regarding investment, capital budgeting, and financial planning.
6. Market Structure and Competition
o Analysis of market types: perfect competition, monopoly, oligopoly,
monopolistic competition.
Uses of Managerial Economics
• Optimizing resources – Helps in the optimal allocation of scarce resources.
• Decision-making – Supports informed and logical business decisions.
• Forecasting – Predicting future business conditions and outcomes.
• Planning and policy formulation – Aids in strategy development and policy-making.
• Problem-solving – Identifies and solves economic and business problems.
2. Utility Analysis
a) Law of Diminishing Marginal Utility
• Definition: As a consumer consumes more units of a good, the additional (marginal)
utility derived from each successive unit decreases.
• Assumptions:
o Rational consumer
o Homogeneous units
o Continuous consumption
o Constant marginal utility of money
• Example: Eating the first ice cream gives high satisfaction, but the third or fourth one
gives less pleasure.
b) Law of Equi-Marginal Utility
• Definition: A consumer will allocate expenditure in such a way that the last unit of
money spent on each good gives the same marginal utility.
• Formula:
Department of Management
Programme: BBA Semester: I
Course Name: Managerial Economics Course Code:BBA102
Session: 2025-26
UNIT-1
1. Nature, Scope, and Uses of Managerial Economics
Nature of Managerial Economics
Managerial Economics is a branch of economics that deals with the application of economic
concepts, theories, and methodologies to solve practical problems in business management.
• Microeconomic in nature – Focuses on individual firms and consumers rather than
the economy as a whole.
• Normative economics – Prescribes what a firm should do to achieve its objectives.
• Pragmatic – Emphasizes real-world applications and decisions.
• Multidisciplinary – Integrates tools from mathematics, statistics, accounting, and
operations research.
Scope of Managerial Economics
1. Demand Analysis and Forecasting
o Helps firms understand consumer demand and forecast future sales.
2. Cost and Production Analysis
o Involves cost estimation, cost control, and understanding cost behavior.
3. Pricing Decisions
o Determining optimal pricing strategies in different market conditions.
4. Profit Management
o Analyzing ways to maximize profits and ensure sustainability.
, 5. Capital Management
o Decisions regarding investment, capital budgeting, and financial planning.
6. Market Structure and Competition
o Analysis of market types: perfect competition, monopoly, oligopoly,
monopolistic competition.
Uses of Managerial Economics
• Optimizing resources – Helps in the optimal allocation of scarce resources.
• Decision-making – Supports informed and logical business decisions.
• Forecasting – Predicting future business conditions and outcomes.
• Planning and policy formulation – Aids in strategy development and policy-making.
• Problem-solving – Identifies and solves economic and business problems.
2. Utility Analysis
a) Law of Diminishing Marginal Utility
• Definition: As a consumer consumes more units of a good, the additional (marginal)
utility derived from each successive unit decreases.
• Assumptions:
o Rational consumer
o Homogeneous units
o Continuous consumption
o Constant marginal utility of money
• Example: Eating the first ice cream gives high satisfaction, but the third or fourth one
gives less pleasure.
b) Law of Equi-Marginal Utility
• Definition: A consumer will allocate expenditure in such a way that the last unit of
money spent on each good gives the same marginal utility.
• Formula:
