The discipline of Managerial Based Economics


"Pure economics has a remarkable way of producing rabbits out of a hat apparently a priori propositions which apparently refer to reality. It is fascinating to try to discover how the rabbits got in, for those of us who do not believe in magic must be convinced that they got in somehow." (John R. Hicks, Value and Capital, 1939, p.23)

Managerial Economics is a discipline that combines economic theory with managerial practice. It tries to bridge the gap between the problems of logic that intrigue economic theorists and the problems of policy that plague practical managers. The subject offers powerful tools and techniques for managerial policy making. An integration of economic theory and tools of decision sciences works successfully in optimal decision making, in face of constraints. A study of managerial economics enriches the analytical skills, helps in the logical structuring of problems, and provides adequate solution to the economic problems. To quote Mansfield, '1Managerial Economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions." Spencer and Siegel man have defined the subject as '1the integration of economic theory with business practice for the

Contents Page

Demand and Supply 03

Online purchasing (eBay) 05

eBay's Profit and loss account 07

Laptop Computers (Hewlett Packard) 08

HP's Profit and loss account 09

Business strategy 10

Conclusion 11

References 12

Demand and Supply

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Robbins has defined Economics as the science that studies human behavior as relationship between ends and scarce means which have alternative uses". Human wants are virtually unlimited and non-satiable, but the means to satisfy them are limited. Managerial Economics hence has evolved as a discipline of choice making. But why does scarcity arise? A resource is scarce if demand for it exceeds its supply. Scarcity is, therefore, a relative term. Anything that commands a price is a scarce item, called economic good, and the rest are free goods. Any item which is a free good today in a particular society may become an economic good tomorrow. Thus, scarcity can be defined as a condition in which resources are not available in adequate amounts to satisfy all the needs and wants of a specified group of people. The problem of scarcity, and thereby, choice would not have arisen if resources of production had been in abundance. A choice has to be made between ends (unlimited wants) and means (limited resources). Due to scarcity of resources, we have to constantly match the ends and means.

In Managerial Economics we are concerned with demand for a commodity faced by the firm. This depends upon the size of the total market or industry demand for the commodity, which in turn is the sum of the demands for the commodity of the individual consumers in the market. Thus we begin by examining the theory of consumer demand in order to learn about the market demand on which the demand for the product faced by a particular firm depends.

Demand is one of the crucial requirements for the existence of any business enterprise. A firm is interested in its own profit and/or sales, both of which depend partially upon the demand for its product. The decision which management makes with respect to production, advertising, cost allocation, pricing etc. call for an analysis of demand.

Demand for a commodity refers to the quantity of the commodity which an individual household is willing to purchase per unit of time at a particular price. Demand for a commodity implies:

Desire to acquire it,

Willingness to pay for it, and

Ability to pay for it.

Demand has a specific meaning. Mere desire to buy a product is not demand. A miser's desire for and his ability to pay for a car is not demand because he does not have the necessary will to pay for it. Similarly, a poor man's desire for and his willingness to pay for a car is not demand because he lacks the necessary purchasing power. One can also conceive of a person who possesses both the will and purchasing power to pay for a commodity, yet this is not demand for that commodity if he does not have desire to have that commodity.

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In keeping with Hicks' insight, we seek here to clarify the implicit assumptions that underlie the shifts in demand and supply curves as they are drawn in existing economics texts. The observons we make are fairly simple, although many teachers of economics may be unfamiliar with them: If the demand relationship is assumed to be 'constant elasticity' (the double logarithm specification), a change in a demand-shifting variable (e.g., income) will result in a rotation of the demand curve and not a parallel shift, while 2) if the demand relationship is assumed to be linear in its arguments, a change in a demand-shifting variable will result in a parallel shift in the demand curve. The clarification is of interest, in part, because virtually all graphs in principles, intermediate microeconomics, and other textbooks in the various field areas are drawn as parallel shifts, implicitly assuming a linear relation. A quick sample of a number of Intermediate Microeconomics texts confirms the potential for confusion [Pindyck and Rubinfeld, 2005; Perloff, 2001 (with the exception of his coverage of an ad valorem tax and a specific tax); Browning and Zupan, 2004; Landsburg, 1999; Salvatore, 1997; Frank, 2000]. Shifting the curves parallel is not, in itself, 'wrong' but rather creates an impression in the student's mind that may lead to later confusion, as for example, when the student thinks in terms of parallel shifts when employing a constant elasticity specification in an econometrics course. Beyond this, those of us who teach regularly are likely to have students ask about why the various shifts 'look' the way they do-Is it always parallel or could it rotate? We suspect that many instructors will find themselves mumbling something like 'anything can happen,' rather than providing the easy response given here. The discussion here appears to 'fall between the cracks' of the standard curriculum in the sense that it is omitted from principles discussions as being (correctly, we feel) too advanced. However, in intermediate courses, supplementing the brief review of supply and demand material with material on the shapes and shifts of demand curves typically does not take place in the rush to get to price consumption paths, extension paths, calculus formalism, and the like. And, by the time future college teachers are in graduate school, the points made here will seem too pedestrian to get into the curriculum, despite the fact that most students are unaware of these observations. We are attempting, not to get these points formally incorporated into existing textbooks, but rather to familiarize those currently teaching economics with the implicit assumptions that underlie the various shifts.

Online purchasing (eBay)

eBay is The World's Online Marketplace® with a global customer base of 233 million. Founded by Pierre Omidyar in 1995, eBay has created a powerful marketplace for the sale of goods and services by a passionate community of individuals and small businesses. eBay now has a global presence in 37 markets, including the United States.

As an early Internet enthusiast, Pierre knew that people needed a central location to buy and sell all kinds of items on a level playing field and to meet other users with similar interests. He started eBay to fulfil this need. At the time, Pierre's fiancée (now wife) was an avid Pezâ„¢ (sweet dispenser) collector. She was having trouble finding people to trade with, and Pierre thought eBay might be the answer to her problems.

On any given day, there are millions of items listed on eBay across thousands of diverse categories, including antiques, toys, books, computers, sports, photography and electronics, amongst many others.

The internet has brought about revolutionary changes in business field. E-commerce was such a revolutionary change and it is conquering the consumers all over the world. Convenience is the main factor which attracts people to e-shopping. People no longer have to go to the busy shopping malls for buying a product. Moreover, e-shopping do not have any definite limits, including time and country, and people have the luxury of choosing the most suitable product from a huge number of sellers. Consumers prefer e-shopping because of these factors. This consumer preference for e-shopping can be understood from the phenomenal growth of companies like eBay and Amazon.

Consider the statistics of e-commerce in India. Indians changed to e-commerce only lately, but it is growing at an explosive rate. In 2006, contribution of e-commerce was $800 million, which increased to $1.2 billion in 2007 and $1.9 billion in 2008. Its contribution in the current fiscal year is $2.8 billion and it is expected to rise to $5.6 billion by 2011 (The Economic Times, 2009).

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Even though economic recession has affected the growth rate of electronic shopping, its demand is increasing over the years, and with the introduction of newer technologies facilitating e-commerce in mobiles, this trend will continue in the coming years also.




D 2


D 1


An increase in demand: Factor-Preference

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. The consolidated statement of income and the consolidated balance sheet data for the years ended, and as of, December 31, 2005, 2006, 2007, 2008 and 2009 are derived from our audited consolidated financial statements.

eBay's Profit and loss account

Year Ended December 31,


2006 (2) 2007 (2)(3) 2008 (2)

(In thousands, except per share amounts)

Consolidated Statement of Income Data (1):

Net revenues





Gross profit





Income from operations





Income before income taxes





Net income





Net income per share:

$ 0.80

$ 0.26

$ 1.37

Basic $ 0.79

Diluted $ 0.78

$ 0.79

$ 0.25

$ 1.36

Weighted average shares:











Laptop Computers (Hewlett Packard)

Hewlett Packard is a technology company that operates in more than 170 countries around the world. they explore how technology and services can help people and companies address their problems and challenges, and realize their possibilities, aspirations and dreams. HP apply new thinking and ideas to create more simple, valuable and trusted experiences with technology, continuously improving the way their customers live and work.

No other company offers as complete a technology product portfolio as HP. They provide infrastructure and business offerings that span from handheld devices to some of the world's most powerful supercomputer installations. We offer consumers a wide range of products and services from digital photography to digital entertainment and from computing to home printing. This comprehensive portfolio helps them to match the right products, services and solutions to theircustomers' specific needs.

The demand for laptop computers are increasing because of its reasonable prices and new technologies. In order to overcome the fierce competition from other manufacturers, most companies are introducing latest technologies in their laptops and are making them affordable by reducing the prices. The increase in demand was phenomenal with the introduction of notebooks.

The net supply of laptop in UK was 3.1 million in the year 2004, and it increased to 5 million in 2005 and to 5.6 million in 2007 (National Statistics, 2007). With the increase in demand for notebooks, the companies are increasing the supply of it, and around 3.6 million notebooks were sold in the fourth quarter of 2008 only. By looking at this trend, it can be estimated that the supply of laptops will increase in the coming years, and this period may see the dominance of notebooks.


D S1 S2




An increase in supply: Factor-Number of suppliers

HP's Profit and loss accounts

For the fiscal years ended October 31,


2008 2007 2006


In millions, except per share amounts

Net revenue






Earnings from operations(1)



$ 8,719

$ 6,560

$ 3,473

Net earnings

$ 7,660

$ 8,329

$ 7,264

$ 6,198

$ 2,398

Net earnings per share


$ 3.21

$ 3.35

$ 2.76

$ 2.23

$ 0.83


$ 3.14

$ 3.25

$ 2.68

$ 2.18

$ 0.82

Cash dividends declared per share

$ 0.32

$ 0.32

$ 0.32

$ 0.32

$ 0.32

At year-end:

Total assets



$ 88,699



Long-term debt


$ 7,676

$ 4,997

$ 2,490

$ 3,392


Earnings from operations include the following items:





In millions

Amortization of purchased intangible assets


$ 967

$ 783

$ 604

Restructuring charges





In-process research and development charges





Pension curtailments and pension settlements, net





Acquisition-related charges





Total charges before taxes



$ 843

$ 814

Total charges, net of taxes


$ 973

$ 690

$ 604

Business strategy

More than 60,000 root soft "tentacles" in the hall outside the wind gently swing, inadvertently Dance Hall of the British creative. 20-meter-high growth of the organic glass corner cube texture of the tentacles of people felt at first glance, a unique British style. The unique design of the British Museum even though in many different creative building also appears unique stylish. Perhaps you are working with colleagues to discuss topics Expo, Expo organizers and exhibitors interviewed, but must not forget to visit the British Museum where to go, they became the first group of guests.

In fact, no matter how out of place or alternative, natural-type cells also can show. Like Hewlett-Packard introduced the HP ProBook S cordial products, while both the trend of strong performance and appearance. HP ProBook 4416s with AMD dual-core or dual-core Athlon TurionII II processor, running strong and reliable; two slots supporting dual channel memory support ensures the highest 8G of memory. Splash-proof floating keyboard, you can not easily had the wrong keyboard, knocked over coffee in the notebook need not panic, simply wipe with a paper towel can solve the problem. HP ProBook 4416s integrated high-end business notebook "at a touch into the" design of the HP QuickLook 2 is definitely a classic business applications the pen, you may be turned off within 10 seconds, access email, calendar, contacts and task information , whether visiting the Expo, or to the HP pavilion dv9000 Battery, may at any time to view important messages, transfiguration time management up to people.


As to the report it shows the selected two different organizations which are ebay and HP how they perform well their business in to the survival and to the growth the way they react as to the demand the supply and the decisions made by the management on forecasting the future on business and what type of strategies they use on them.

The Profit and loss accounts of the both organizations show the growth of them and it proves these organizations are running their business smoothly to achieve their targets and the managements are well supplying goods and services as to the demand of their customers.