Chapter 4 provides a basic model of individual behavior that enables the manager to understand the impact of various managerial decisions on the actions of consumers and workers. Effective managers will use the theory of consumer behavior to both direct employee's behavior and to choose proper pricing and ordering strategies. The underlying assumptions of consumer theory help the student to have a more complete grasp of demand theory. This ultimately leads to decisions, which improve the profitability of the manager's firm.

Our preference when teaching managerial economics is to thoroughly cover indifference curve analysis. We have found that a complete understanding of consumer choice not only helps students become better managers, but it also improves their comprehension of producer theory when we cover isoquants and isocosts. It also helps students better understand the isoprofit curves used in oligopoly models. However, if you choose not to cover this material it will not affect your students' ability to learn from the rest of the book. After chapter 4, we limit our use of indifference curve analysis to appendices.