Unit 1: Management Concepts and Managerial Economics

Unit 1 is the foundation of the Management paper. It combines management thought, decision-making, communication, ethics and managerial economics. Most questions are factual or matching-type, so precise recall of names, years and definitions earns quick marks.

1. Management Thinkers at a Glance

Later approaches matter too. The systems approach treats the organisation as an open system of interrelated parts. The contingency approach says there is no one best way; the right practice depends on the situation (Joan Woodward, Lawrence and Lorsch, Fiedler).

2. Fayol’s Principles and Mintzberg’s Roles

Fayol’s 14 principles are division of work, authority and responsibility, discipline, unity of command, unity of direction, subordination of individual interest, remuneration, centralisation, scalar chain, order, equity, stability of tenure, initiative and esprit de corps.

Two favourites in the exam:

• Unity of command means one boss for each employee; unity of direction means one head and one plan for activities with the same objective.
• The gang plank allows direct communication between employees at the same level, bypassing the scalar chain in urgent cases.

Mintzberg grouped managerial work into three role sets:

• Interpersonal: figurehead, leader, liaison
• Informational: monitor, disseminator, spokesperson
• Decisional: entrepreneur, disturbance handler, resource allocator, negotiator

Under Katz’s skills model, technical skills matter most at lower levels, conceptual skills at the top, and human skills at every level.

3. Decision-Making

• Programmed decisions are routine and repetitive; non-programmed decisions are novel and unstructured (Simon).
• Rational model: define the problem, set criteria, generate alternatives, evaluate them, choose, implement and review.
• Bounded rationality: limited time and information lead managers to “satisfice”, choosing the first satisfactory option rather than the best one.
• Decision conditions: certainty, risk (probabilities known) and uncertainty (probabilities unknown).
• Criteria under uncertainty: maximax (optimistic), maximin (pessimistic, Wald), minimax regret (Savage), Hurwicz (coefficient of optimism, α) and Laplace (equal probabilities).
• Group techniques: brainstorming (Alex Osborn), the Delphi technique (anonymous rounds of expert opinion) and the nominal group technique.

4. Communication

• Shannon–Weaver model (1949): sender, encoder, channel, noise, decoder, receiver.
• Johari Window (Joseph Luft and Harry Ingham, 1955): open, blind, hidden and unknown areas.
• Grapevine: informal communication. Keith Davis found the cluster chain to be the most common pattern; the others are single strand, gossip and probability chains.

5. Managerial Economics

Demand and elasticity

• Price elasticity = % change in quantity demanded ÷ % change in price. Above 1 is elastic, below 1 inelastic, equal to 1 unitary; 0 is perfectly inelastic and infinity perfectly elastic.
• Income elasticity is positive for normal goods, negative for inferior goods and above 1 for luxuries.
• Cross elasticity is positive for substitutes and negative for complements.
• Exceptions to the law of demand: Giffen goods, Veblen (prestige) goods and expectations of a further price rise.

Market structures

In every structure, profit is maximised where MR = MC, with MC rising.

Macroeconomics

• GNP = GDP + net factor income from abroad; NNP = GNP − depreciation; national income = NNP at factor cost.
• Inflation may be demand-pull or cost-push. Under flexible inflation targeting, the RBI targets 4% CPI inflation within a 2–6% band, a target the government has retained until March 2031.

6. Ethics, CSR and Corporate Governance

• Carroll’s CSR pyramid (1991): economic, legal, ethical and philanthropic responsibilities.
• Section 135, Companies Act 2013: CSR applies to companies with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. They must spend at least 2% of average net profits of the preceding three years on Schedule VII activities.
• Exam trap: the Corporate Laws (Amendment) Bill, 2026 proposes raising the net-profit trigger to ₹10 crore, but it is not yet law. Answer ₹5 crore unless the Bill is enacted before your exam.
• Governance committees: Cadbury (UK, 1992), Kumar Mangalam Birla (1999), Narayana Murthy (2003), Uday Kotak (2017).

Practice MCQs

1. The “gang plank” is associated with which of Fayol’s principles?                                                                                   (a) Unity of command (b) Scalar chain (c) Order (d) Equity
2. Which is NOT a decisional role in Mintzberg’s framework?                                                                                         (a) Entrepreneur (b) Negotiator (c) Spokesperson (d) Resource allocator
3. “Satisficing” is associated with:                                                                                                                                              (a) F.W. Taylor (b) Herbert Simon (c) Peter Drucker (d) Chester Barnard
4. Price rises by 10% and quantity demanded falls by 5%. Demand is:                                                                         (a) Elastic (b) Unitary (c) Inelastic (d) Perfectly elastic
5. The kinked demand curve explains price rigidity in:                                                                                                       (a) Perfect competition (b) Monopoly (c) Oligopoly (d) Monopolistic competition

Answers: 1 (b); 2 (c), as spokesperson is an informational role; 3 (b); 4 (c), as elasticity = 5 ÷ 10 = 0.5; 5 (c).

Disclaimer: This study material is for educational and exam-preparation purposes only.  Facts and figures are based on sources available as of October 2026; aspirants should verify them against the latest official syllabus, notifications and standard textbooks before the exam.