LECTURE NOTE | MANAGERIAL ECONOMICS | ALJON A.

OGALE | 2026|ESSU BORONGAN

Lesson 1: Introduction to Managerial 5. How profits may be improved

Economics
In simple terms:
Learning Outcomes
Managerial Economics = Economics + Business
At the end of this lesson, students should be able Decision-Making
to:
Nature of Managerial Economics
1. Define managerial economics and explain
Managerial economics possesses several
its nature.
characteristics:
2. Discuss the scope and importance of
1. Decision-Oriented
managerial economics.
Managerial economics focuses on making effective
3. Differentiate managerial economics from
business decisions rather than merely
microeconomics and macroeconomics.
understanding economic theories.
4. Explain the role of economics in
Example:
managerial decision-making.
A farm manager deciding whether to expand corn
production based on expected demand.
I. INTRODUCTION TO MANAGERIAL
ECONOMICS
2. Goal-Oriented
Organizations operate in environments where
Business decisions are directed toward achieving
resources are limited while human wants and
organizational goals such as:
business objectives continue to increase. Managers
are constantly faced with decisions regarding 1. Profit maximization
production, pricing, investment, marketing, 2. Cost minimization
expansion, and allocation of resources. To make 3. Market expansion
rational and efficient decisions, managers rely on 4. Sustainability
economic principles.
Managerial Economics is a branch of economics Example:
that bridges economic theory and business An agribusiness chooses lower-cost inputs to
practice. It provides tools and techniques that improve profitability.
managers use to solve practical business problems
and improve organizational performance.
II. DEFINITION AND NATURE OF MANAGERIAL 3. Practical and Applied
ECONOMICS Managerial economics applies economic concepts
Definition to actual business situations.

Managerial Economics refers to the application of Example:

economic concepts, theories, and analytical Using supply and demand analysis before
methods to business decision-making. introducing a new product.

According to economic scholars, managerial

economics helps managers determine: 4. Integrative in Nature
1. What to produce Managerial economics integrates concepts from:
2. How much to produce
3. How resources should be allocated 1. Economics
4. What pricing strategy should be adopted
2. Accounting

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3. Statistics 3. Production costs

4. Finance Example:
5. Marketing Setting retail prices for agricultural products.
6. Management
D. Investment Decisions
Managers evaluate whether investments generate
5. Analytical and Quantitative
acceptable returns.
It utilizes quantitative techniques for forecasting and
evaluating alternatives. Examples:
1. Purchasing farm machinery
Examples: 2. Expanding production facilities
1. Regression analysis 3. Introducing new technology
2. Forecasting
3. Cost-benefit analysis E. Profit Planning and Risk Analysis
4. Break-even analysis
Managerial economics helps reduce uncertainty
III. SCOPE AND IMPORTANCE OF through informed decision-making.
MANAGERIAL ECONOMICS
Examples:
The scope of managerial economics covers various 1. Market forecasting
areas of business operations. 2. Budget planning
3. Resource allocation
A. Demand Analysis and Forecasting
Demand analysis determines customer preferences Importance of Managerial Economics
and purchasing behavior. Managerial economics is important because it:
1. Improves decision quality
Managers ask: 2. Maximizes profits and efficiency
1. Who are our customers? 3. Supports strategic planning
2. What products do they want? 4. Reduces business uncertainty
3. How much are they willing to buy? 5. Promotes efficient resource utilization

Example: IV. RELATIONSHIP WITH MICROECONOMICS

A rice producer forecasting future demand during AND MACROECONOMICS
peak seasons. Managerial economics draws concepts from both
microeconomics and macroeconomics.
B. Production and Cost Analysis
Managers determine: Managerial
Microeconomics Macroeconomics
1. Optimal level of production Economics
2. Efficient use of inputs Applies
Focuses on
3. Production costs economic Focuses on the
individual
concepts to economy as a
consumers and
managerial whole
Example: firms
decisions
A poultry enterprise selecting feeds that maximize
output at minimum cost. Uses analysis Studies inflation
Studies pricing
for business and national
and demand
C. Pricing Decisions actions income
Pricing influences profitability and competitiveness.
Factors considered: Concerned with Concerned
Concerned with
1. Consumer demand resource with business
economic growth
2. Competitor pricing
allocation performance

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 LECTURE NOTE | MANAGERIAL ECONOMICS | ALJON A. OGALE | 2026|ESSU BORONGAN

Relationship with Microeconomics 4. For Whom to Produce?

Managerial economics mainly relies on Managers identify target consumers.
microeconomics because it studies:
5. When to Invest?
1. Consumer behavior
Managers evaluate timing and profitability.
2. Demand and supply
3. Cost analysis
4. Production decisions
5. Market structures Example: Agribusiness Application
Suppose a vegetable producer has limited land.
Example:
Determining the selling price of farm products. Economic analysis helps determine:
1. Which crop generates higher returns
2. Expected market demand
Relationship with Macroeconomics 3. Cost of production
Macroeconomics affects managerial decisions 4. Pricing strategy
through: 5. Expected profit

1. Inflation This demonstrates how managerial economics

2. Interest rates transforms economic theory into practical decisions.
3. Exchange rates
4. Government policies
5. Economic growth Lesson Summary

Example: Managerial economics applies economic principles

An increase in inflation raises production costs. to business decision-making. It supports managers
in solving problems involving demand, production,
pricing, investment, and risk. By integrating concepts
V. ROLE OF ECONOMICS IN MANAGERIAL from microeconomics and macroeconomics,
DECISION-MAKING managerial economics enables organizations to
allocate resources efficiently and achieve business
Managers continuously make decisions under objectives.
limited resources.
Discussion Questions
Economics provides a framework for rational
choices. 1. What is managerial economics?
2. Why is managerial economics considered
Major Managerial Decisions Supported by decision-oriented?
Economics 3. Differentiate microeconomics and
macroeconomics.
1. What to Produce?
4. How does managerial economics help
Managers determine products that satisfy market managers make decisions?
demand. 5. Explain the importance of managerial
economics in agribusiness.
2. How Much to Produce?
Managers estimate production volume.
Assignment
3. How to Produce?
Choose one local business or agricultural enterprise
Managers select efficient technologies and and identify three managerial decisions where
resources. economic principles are applied.

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Lesson 2: Economic Concepts for Managerial In economics, every choice involves giving up
Decisions another opportunity because resources are limited.
LEARNING OUTCOMES Formula:
At the end of this lesson, students should be able Opportunity Cost = Benefit of Foregone Alternative
to:
Explanation
1. Explain the major economic concepts used
in managerial decision-making. Managers frequently encounter situations where
2. Apply opportunity cost in evaluating they must choose one action over another.
business alternatives.
3. Analyze business decisions using the Selecting one option automatically means losing the
incremental principle. benefits of another option.
4. Explain how the equi-marginal principle Opportunity cost does not only refer to money it may
supports resource allocation. include:
5. Evaluate investment decisions using
discounting techniques. 1. Lost income
6. Discuss the importance of time perspective 2. Lost production
in managerial planning. 3. Lost time
4. Lost market opportunities
5. Lost business growth
INTRODUCTION
Business organizations continuously make decisions Example: Agricultural Decision
under conditions of scarcity and uncertainty.
Managers are expected to choose among A farmer has one hectare of land.
alternatives while maximizing returns and minimizing
Option A:
costs. However, resources such as land, labor,
Plant corn → Expected profit = ₱70,000
capital, technology, and time are limited. Because of
this limitation, managerial decisions must be guided Option B:
by sound economic principles. Plant vegetables → Expected profit = ₱55,000
Managerial economics provides concepts that help If the farmer chooses corn:
managers evaluate choices systematically and
rationally. These concepts become practical tools in Opportunity Cost = ₱55,000
solving production, marketing, investment, and This means the farmer sacrificed the income from
operational problems. vegetable production.
This lesson introduces five fundamental concepts
used in managerial economics:
Example: Business Decision
1. Opportunity Cost Principle
2. Incremental Principle A company has ₱500,000.
3. Equi-Marginal Principle
Option A:
4. Discounting Principle
Purchase new equipment
5. Time Perspective Principle
Option B:
Invest in advertising
I. OPPORTUNITY COST PRINCIPLE
If equipment is selected, the potential benefit from
Opportunity Cost refers to the value of the next best
advertising becomes the opportunity cost.
alternative that must be sacrificed when making a
decision. Importance in Managerial Decision-Making
Managers use opportunity cost to:

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 LECTURE NOTE | MANAGERIAL ECONOMICS | ALJON A. OGALE | 2026|ESSU BORONGAN

1. Compare alternatives Example 2: Farm Enterprise

2. Allocate scarce resources
Current rice area: 3 hectares
3. Evaluate business trade-offs
4. Improve profitability Additional hectare cost: ₱30,000
Expected additional income: ₱45,000
I. INCREMENTAL PRINCIPLE
Incremental Gain:
Definition
₱45,000 − ₱30,000
The Incremental Principle states that managerial
decisions should focus on additional benefits and = ₱15,000
additional costs resulting from a decision. Decision:
Managers evaluate whether the additional revenue Expansion is economically justified.
exceeds the additional cost.
Formula: Importance
Incremental Profit = Incremental Revenue − Incremental Cost
The incremental principle helps managers:
Decision Rule:
1. Decide production increases
If Incremental Revenue > Incremental Cost → Accept 2. Evaluate expansion plans
If Incremental Revenue < Incremental Cost → Reject 3. Introduce new products
4. Improve profitability
Explanation
III. EQUI-MARGINAL PRINCIPLE
Incremental analysis examines changes rather than The Equi-Marginal Principle states that limited
total values. resources should be allocated among competing
alternatives until the marginal benefit from each
Managers ask:
activity becomes equal.
“What additional gain will result if we change our
decision?” Simply stated:

Allocate resources where they generate the highest

Example: Production Expansion additional return.

Current production: 1,000 units Explanation

Additional production: 500 units Businesses often operate with limited resources.
Additional Revenue = ₱120,000 Managers must distribute these resources
efficiently.
Additional Cost = ₱80,000
The objective is:
Incremental Profit:
Maximum satisfaction or maximum profit.
= 120,000 − 80,000
= ₱40,000
Illustration
Decision:
Expand production. Suppose a business has ₱100,000 for promotion.
Option:
Social Media → Return = ₱10 per peso

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Television → Return = ₱6 per peso

Radio → Return = ₱4 per peso
Managers allocate more resources to higher-return
alternatives until returns equalize.

Agricultural Example
General Formula: FV = PV(1 + r)^n
A farmer has limited fertilizer.
Where:
Possible allocation:
FV : Future Value
Corn → Yield increase = 6 kg PV: Present Value
r: Interest Rate
Rice → Yield increase = 3 kg
n: Number of years or time period
Vegetables → Yield increase = 8 kg
Example:
More fertilizer should initially go to vegetables. If you deposit P10,000 in a bank that pays you 15%
Importance interest compounded annually,
how much would you have at the end of (a) one year,
Equi-marginal analysis helps: (b) 5 years?
1. Improve efficiency
2. Maximize returns Solution:
3. Optimize resource use
4. Support production decisions (a) FV = (1.15)1 (10,000)

= 11,500
IV. DISCOUNTING PRINCIPLE
(b) FV = (1.15)5 (10,000)
The Discounting Principle recognizes that money
received today is more valuable than the same = 2.011 (10,000)
amount received in the future.
0r 10,000 x CF 15%,5yrs
This concept is called: Time Value of Money
Explanation
2. Discounting - Discounting is the exact
Future money loses value because of: inverse of compounding. It strips away
anticipated interest to determine how
1. Inflation much a future sum of money is worth in
2. Investment opportunities today's peso value.
3. Business uncertainty
4. Purchasing power changes Formula:

Managers convert future values into present values.

1. Compounding - Compounding calculates
how money grows over time when you
earn interest on your original money plus
the accumulated interest from previous
periods. It is used to figure out what a Example: At the end of 5 years, you will need
current investment will be worth in the P100,000 to start a project. How much must
future.

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you deposit in the bank now, which pays 15% \Importance

yearly interest rate, to ensure that at the end of 5
Time perspective allows managers to:
years you will have enough capital to start the
project? 1. Avoid short-sighted decisions
2. Balance present and future goals
3. Improve strategic planning
SUMMARY OF THE FIVE ECONOMIC
CONCEPTS

Applications Concept Main Question

Opportunity Cost What am I sacrificing?
Managers use discounting in: What additional gain will I
Incremental Principle
receive?
1. Capital budgeting Where should resources be
2. Equipment purchase Equi-Marginal Principle
allocated?
3. Project evaluation What is future money worth
4. Farm investments Discounting Principle
today?
Time Perspective What are the long-term
Comparison Chart Principle effects?

CLASS DISCUSSION QUESTIONS

1. Why is opportunity cost important in
managerial decisions?
2. How does incremental analysis improve
profitability?
3. Explain the equi-marginal principle using
an agricultural example.
4. Why is discounting important in investment
decisions?
V. TIME PERSPECTIVE PRINCIPLE 5. How does time perspective influence
The Time Perspective Principle emphasizes that business sustainability?
managerial decisions must consider both short-term
and long-term consequences.
APPLICATION ACTIVITY
Explanation Choose one business enterprise.
Good decisions should not focus only on immediate
profits. Identify:
Managers evaluate:
1. Opportunity cost involved
Short-Term Effects:
2. Incremental decision to improve
1. Immediate revenue
performance
2. Current costs
3. Resource allocation strategy
Long-Term Effects:
4. Investment consideration
1. Sustainability
5. Short-term and long-term effects
2. Business growth
Prepare a one-page economic analysis.
3. Competitive advantage

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