The Foxes, the only Football League side remaining in the competition at the quarter-final stage, struggled to cope with the early pace set by the Premier League club and found themselves behind after only eight minutes courtesy of Aleksandar Kolarov's superb free-kick.
Edin Dzeko then struck either side of half-time to give Manuel Pellegrini's men control, although Lloyd Dyer did manage to pull a goal back late on as it ended 3-1 at the King Power Stadium.
Pearson felt a couple of the goals Manchester City scored were avoidable, but the Leicester boss was heartened by the way his team played in the second half.
He said: "We were beaten by a very good side but we were punished severely for one or two mistakes. I would have liked us to have kept it a bit tighter for longer but we were severely punished.
"The players deserve a bit of credit for trying to put them under pressure and I think it would have been easy to allow a side of their quality to totally dominate it but we're still disappointed not to have been able to keep it tight for longer.
"We know that we probably didn't give ourselves the best chance. I don't think people quite appreciate the quality they have though. I don't think it was a case of us showing too much respect; it was just a case of us being unable to put them under enough pressure in the first half.
"We didn't manage the ball as well as we can do. Whether you put that down to how the opponents played or a few of our own mistakes I don't know. We can play better though and I'm disappointed to go out of the competition.
"It was an opportunity to play against one of the top sides. We're disappointed that we didn't give ourselves the best chance. Early goals are always a key influence on that and conceding close to half time changes the complexion too. That was key, but there are still positives to take, certainly the way we came back in the second half.
"It was good for us to score because I think it was a bit of reward for the endeavour that we showed in the second half. That's scant consolation if I'm honest, because regardless of who you play, you don't like losing games."
Leicester return to Championship action on Saturday and, with the club sitting third in the table, Pearson has no doubts over his primary aim.
He added: "Our biggest priority has to be league status. We certainly need to be involved in the promotion race."