MEM Lecture 1

8/12/2019 MEM Lecture 1

http://slidepdf.com/reader/full/mem-lecture-1 1/15

Microeconomics for

Managers

Biresh Sahoo, Ph.D

Professor , XIM Bhubaneswar

Lecture 1: Module I - Introduction to

Microeconomics and Business



About me in brief …Over 13 years of teaching experiences after Ph.D.

Recipient of three prestigious postdoctoral fellowships:

JSPS Fellowship by the Ministry of ducation! "apan for 1# consecutive $onths in #%%1&%#.

Lise Meitner Fellowship by the 'oard of (ustrian )cience *und! (ustria for 1# consecutive $onths

in #%%+&%,

-first person fro$ ndia to receive this fellowship/.

Postdoctoral Fellowship by the *R0! 2ovt. of Portugal for 3 $onths in #%%4&%+.

)econd pri5e 6inner for (M) nternational 7oung Manage$ent Researcher (ward

in #%%+

8ualified 920 for ;ectureship in cono$ics -$a<or: cono$etrics/ in 1,,=.

Me$ber of the ditorial 'oard of four refereed <ournals:1/ (M) nt. ". of Manage$ent! #/ nt. ". of nfor$ation )yste$s and )ocial 0hange! 3/ he Open

Manage$ent "ournal! and >/ Prabandhan: ndian ". of Manage$ent



Post&doc "ob xperience in Research:

#%%1&#%%# -1# $onth/: ")P) *ellow at 2RP)! o?yo! "apan

#%%+&#%%, -1# $onths/: ;ise Meitner *ellow at 69&6ien!

(ustria

#%%> -March/: Research *ellow at 2RP)! o?yo! "apan

#%%> -Dec./: Research *ellow at 2RP)! o?yo! "apan

#%% -"an&*eb./: @isiting )cholar at 2RP)! o?yo! "apan#%%4 -"an&*eb./: @isiting )cholar at 2RP)! o?yo! "apan

#%%, -March/: @isiting )cholar at 2RP)! o?yo! "apan

#%1# -*eb./: @isiting )cholar at 2RP)! o?yo! "apan

#%1# -(pril/: @isiting )cholar at "9! ew Delhi0redited with 3% publications so far in various scholarly <ournals of

repute -#3 nternational A 4 Do$estic/ and two boo?s



)ignificant publications include in <ournals such as uropean "ournal of Operational Research - Elsevier Science/

O$ega: he nternational "ournal of Manage$ent )cience - Elsevier

Science/ nternational "ournal of Production cono$ics - Elsevier Science/

(nnals of Operations Research -Springer /

cological cono$ics - Elsevier Science/

)ocio&cono$ic Planning )ciences - Elsevier Science/

nternational "ournal of )yste$s )cience -Taylor Francis/

nternational ransactions in Operational Research -Wiley-Blackwell /

"ournal of the Operations Research )ociety of "apan

"ournal of 8uantitative cono$ics - Indian Econoetric Society/

(uthorBs h&index: + -)ource: http:CCscholar.google.co.inCcitationshlEenFuserEtGolD@g(((("/

- ! scientist has inde" h i# h o# his $ papers have at least h

citations each% and the other &$ ' h( papers have at ost h

citations each(



)erving as Reviewer for several scholarly <ournals

(rea of Research nterest:& fficiency and Productivity (nalysis of Organi5ations

& Data nvelop$ent (nalysis

My research contribution to HM' against others



Faculty Tier 1 (6) Tier 2 (17) Tier 3 (7) Tier (12) Total (2)

P. Goswami --- --- --- 1 1

u!"asis #a$ --- --- --- 1 1

andi% &nand --- --- --- 1 1

'. P. 'as --- --- 2 1 3

Biswa . Mis"ra --- 1 --- 1 3

"rid"ar (. 'as" --- 1 --- 3 4

#a"ul )"ar*urta --- 1 2 --- 3

G. (. +a$a* --- 2 --- --- 2

,. "am!u Prasad --- 3 --- --- 3

Bani*anta Mis"ra 1 4 --- --- 5Bires" (. a"oo 5 5 3 3 16

o m$contri!ution

3.33 20.41 42.6 25 3.1

Source: &s %er + #an*in and &B #an*in 211



Microeconomics for Managers

What is Microeconomics?

Microeconomics deals wit" t"e stud$ o "ow "ouse"olds and

irms ma*e decisions and "ow t"e$ interact in mar*ets.

)"at is7

- we stud$ "ow %eo%le ma*e decisions: how much they

work, what they buy, how much they save, and how they

invest their savings;

- we also stud$ "ow %eo%le interact wit" one anot"er in t"e

mar*et.



Because the functioning of market reflects the behavior of

the individuals (consumers and producers) who all

comprise the market, we study Microeconomics with thefollowing principles of individual decision making:

Peo%le ace trade-os in t"eir decisions

)"e cost o somet"in is w"at $ou i8e u% to et it7 i.e.7o%%ortunit$ cost

#ational %eo%le t"in* at t"e marin

Peo%le res%ond to incenti8es

Mar*ets are usuall$ a ood wa$ to orani9e economic acti8it$

Go8ernments can sometimes im%ro8e mar*et outcomes



Some potential questions to be answered!

– Is ree mar*et ood

–

;ow %rice ceilins/loors aect mar*et outcomes – ;ow ta<es on !u$ers aect mar*et outcomes

– ,an ood news or armin !e !ad news or armers

– 'oes dru interdiction increase or decrease dru related

crimes – ="$ do some tennis clu!s "a8e an annual mem!ers"i% c"are

in addition to t"eir "ourl$ court ees

– ;ow does t"e c"ane in %rices aect t"e social

welare/well!ein o %eo%le – ;ow could one assess credit ris*/audit ris* o com%an$/

%eo%le

– ;ow could one assess t"e %erormance o em%lo$ees o an

orani9ation



Getting Started

)tudents often tell us! I read the text boo?

and thought understood it! but when try to

do the proble$s! donBt ?now where to start.J

ndeed! it is a lot easier to passively KlearnB a

concept than to try to apply it. 'ut the $ain

reason for learning the tools of econo$ic

theory is so that you can apply the$! and the best way we ?now to develop the s?ill of

applying ideas is to do lots of proble$s.



!ow managerial economics differs from its public

policy cousins, Microeconomics, or e"uivalently,

how business differs from economics#

Business: mone$ ma*in o%%ortunities

)o identi$ it7 one needs to understand "ow wealth is created and

destroyed.

=ealt" is created w"en assets are mo8ed rom lower-to "i"er-8alueduses.

& %erson>s 8alue or a ood/ser8ice is t"e amount o mone$ "e/s"e is

willin to %a$ or it.

)"is willinness re?uires !ot" desire or t"e ood and t"e a!ilit$ to %a$or it.

@alue a %roduct A "ow buyer and seller %ercei8e it

="ile a buyer>s 8alue or an item is "ow muc" "e will %a$ or it7 a seller

won>t acce%t less t"an "er 8alue7 costC.



Capitalism creates wealt" !$ lettin %eo%le ollow t"eir sel-

interest ;ow

& !u$er willinl$ !u$s i t"e %rice is !elow "is 8alue7 and a

seller sells i t"e %rice is a!o8e "er 8alue A !ot" !u$er and

seller ainD ot"erwise7 t"e$ won>t transact.

Voluntary transactions creates wealth.

!n "#a$%le: u%%ose t"at a !u$er 8alues a "ouse at #s.2

la*" and a seller at #s. 15 la*". I t"e$ can aree on a %rice A

sa$7 #s. 1 la*" A t"e seller recei8es #s. 3 la*" more

producer surplus and t"e consumer recei8es it wort" #s. 2

la*" more t"an "e is willin to %a$ or it consumer surplus.



$conomics vs# Business

Economics is useul to !usiness as it s"ows us "ow to s%ot mone$-

ma*in o%%ortunities assets in lower-8alued uses.

&n econom$ is eicient i all assets are em%lo$ed in t"eir "i"est-

8alued uses.

Economists searc" or assets in lower-8alued uses and t"en suest

%u!lic %olicies to mo8e t"em to "i"er 8alued ones.

& ood %olic$ is one t"at increases eicienc$ !$ acilitatin t"e

mo8ement o assets to "i"er-8alued usesD and a !ad %olic$ is one

t"at %re8ents assets rom mo8in to "i"er-8alued uses or7 worse7

mo8e assets to lower-8alued uses.

'eterminin w"et"er an economic %olic$ is ood or !ad re?uires

anal$9in all o its eects A t"e unintended as well as t"e intended

eects.



;a8in identiied ineicient outcomes7 economists will

arue or c"anes in %u!lic %olicies. Economists see

ineicienc$ as somet"in to !e eliminated t"rou" !etter

%u!lic %olic$.

;owe8er7 !usiness %eo%le see ineicienc$ as somet"in to

!e e<%loited A t"e$ reali9e t"at ineicienc$ im%lies

o%%ortunit$. I an asset is not em%lo$ed in its "i"est-8alued

use7 someone can ma*e mone$ !$ mo8in it. In t"is wa$

!usiness can sometimes mitiate t"e "armul eects o !ad

%olic$.

First lesson o& business ('ow to $ae $oney): ind anasset em%lo$ed in lower-8alued use7 !u$ it7 and t"en sell it

someone w"o %uts a "i"er 8alue on it. Eac" underem%lo$ed

asset re%resents a %otential wealt"-creatin transaction.



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MEM Lecture 1