Course Outline
Managerial Economics
Spring Semester, 2011, Module 1
Lecture time: Tuesday & Friday 10:30 am-12:20pm
Instructor: Ying Kong
Office hours: Tuesday & Thursday 1:30pm- 2:30pm or by appointment. I will also be available after class.
Contact: Phone 26033085, Email kongying@szpku.edu.cn
COURSE DESCRIPTION
Managerial Economics is the application of economic theory and methodology to managerial decision making problems within various organizational settings such as a firm or a government agency. The emphasis in this course will be on demand analysis and estimation, production and cost analysis under different market conditions, advanced topics in business strategy. Students taking this course are expected to have had some exposure to economics and be comfortable with basic algebra. Some knowledge of calculus would also be helpful.
COURSE OBJECTIVE
In today's dynamic economic environment, effective managerial decision making requires timely and efficient use of information. The purpose of this course is to provide students with a basic understanding of the economic theory and analytical tools that can be used in decision making problems. Students who successfully complete the course will have a good understanding of economic concepts and tools that have direct managerial applications. The course will sharpen their analytical skills through integrating their knowledge of the economic theory with decision making techniques. Students will learn to use economic models to isolate the relevant elements of a managerial problem, identify their relationships, and formulate them into a managerial model to which decision making tools can be applied. Among the topics covered in the course are: price determination in alternative market structures, demand theory, production and cost functions, and business strategy. In addition, the course will provide a basic introduction to econometric analysis and its role in managerial decision making.
TEXBOOKS AND CLASS NOTES
The main textbook is Managerial Economics and Business Strategy, 6th ed. by Michael Baye, McGraw Hill
Class notes (PPT) and other materials will be posted online for students download.
COURSE EVELUATION
Class Participation: 10%
Midterm Exam (March 29 in class): 30%
Final Exam (Time and location TBD): 40%
Project and Presentation: 20%
SYLLABUS
All chapters listed below refer to the Baye textbook unless otherwise indicated. You are responsible for materials in the Baye text that correspond to the material covered in class. The Baye text should be viewed as a learning aide, NOT as an independent source of examinable material. However, doing questions end of each chapters will greatly help you to prepare exams.
Week 1 (Feb. 21 to Feb. 25)
The Fundamentals of Managerial Economics Ch 1
Market Forces: Demand and Supply Ch 2
Week 2 (Feb.28 to Mar. 4)
Quantitative Demand Analysis Ch 3
Week 3 (Mar. 7 to Mar. 11)
The Production Process and Costs Ch 5
Week 4 (Mar. 14 to Mar. 18)
The Organization of the Firm Ch 6
The Nature of Industry Ch 7
Week 5 (Mar. 21 to Mar. 25)
Midterm Exam
Managing in Competitive, Monopolistic,
Monopolistically Competitive Market Ch 8
Week 6 (Mar.28 to April 1)
Game Theory: Inside Oligopoly Ch 10
Week 7 (April 4 to April 8)
Pricing Strategies for Firms with Market Power Ch 11
Week 8 (April 11 to April 15)
Advanced Topics in Business Strategy Ch 13
Week 9 (April 18 to April 22)
A Manager’s Guide to Government in the Marketplace Ch 14
Project Presentation and Hand In
Final Exam (TBD)
MAJOR PROJECT
In the class students are required to conduct 14 problem-solving exercises (called memos) which are compiled as one project. The exercises require you to apply some of the tools you learned in each chapter covered in the class to make a recommendation based on an actual business scenario. Some of these memos accompany the Time Warner case (page 548-583 of your textbook). Additional memos, as well as data that may be useful for your analysis, are available online at www.mhhe.com/baye6e.
In the beginning of the class the students are divided at most as 8 groups depended on the number of students who enrolled in the class. In the end of the course each group is required to hand in your analysis of these exercises as well as your general recommendation and conclusion. Each group of students is also required to make 15 minute in class presentation for your project.
The following provides an overview of the chapters with which the memos may be assigned, the concepts involved with each memo, and a synopsis of what is required to conduct the analysis.
|
Memo
|
Relevant
Chapters
|
Concepts | Synopsis of the exercise |
| 1 | 3 |
Elasticity, Total
Revenue Test,
Regression Analysis
|
Students are required to use the data to estimate a demand function and determine the revenue maximizing price. |
| 2 | 5, 8, 11 |
Irrelevance of Sunk
Costs, Covering
Variable Costs
|
This memo contains a lot of information that might lead students down the path of doing present value analysis, but these costs are sunk. But all that is required for this memo is to recognize that only variable costs are relevant. |
| 3 | 3, 13 |
Complementarities,
Penetration Pricing
|
Students are to make open-ended recommendations for profitably exploiting complementarities between HDTV and digital cable services. |
| 4 | 5, 7, 14 |
Complementarities,
Mergers, Antitrust,
Defining the relevant market
|
Students are asked to evaluate a proposed merger between Fox News and CNN. Data is given that permits students to compute HHIs. Key issues include (1) what is the relevant market, (2) is the merger likely to be approved, and (3) are the synergies real? |
| 5 | 1,7 | Five Forces Analysis | This is an open-ended memo that requires a five forces analysis and ranking of business lines (from most sustainable profits to least). |
| 6 | 5, 8, 11 | MR=MC pricing rule | Students are given data from which they are required to determine relevant marginal costs, estimate demand, and compute the profit-maximizing price. |
| 7 | 10, 13 |
Dominant Strategy,
Nash equilibrium,
Game theory
|
Students are given information that they must put into a bimatrix game to make a pricing decision. |
| 8 | 3, 7, 5, 13 |
Demand and cost
complementarities,
network effects,
vertical integration
|
An open-ended scenario that can be approached from many directions, depending on which chapters have been covered at the time the students analyze the memo. |
| 9 | 3, 7, 5, 13 |
Demand and cost
complementarities,
network effects,
vertical integration
|
An open-ended scenario that can be approached from many directions, depending on which chapters have been covered at the time the students analyze the memo. |
| 10 | 11, 13 |
Auctions, Bundling,
Network Effects
|
An open-ended memo that asks whether it makes sense to sell off assets individually or as a bundle. |
| 11 | 5, 7, 14 |
Complementarities,
Antitrust
|
An open-ended scenario that asks whether it makes sense for TW to sell off its filmed entertainment divisions.
Students should recognize that doing so might adversely affect its ability to provide online content at AOL and that it also may be difficult to find a buyer that is small enough to not raise antitrust concerns.
|
| 12 | 1, 8, 11 |
Opportunity Cost,
Marginal Analysis
|
Adding additional networks to the basic cable lineup entails an opportunity cost: existing channels must be dropped to add an additional channel. Students must recognize this to determine the optimal decision. |
| 13 | 3 |
Income elasticity,
Price elasticity,
Interpreting
regression output
|
Students are given regression output and required to use it to determine how a decline in income would impact sales, and how much price would have to be cut to maintain the same number of customers. |
| 14 | 11 |
Price discrimination,
bundling, regression
|
Students are given data and required to conduct regressions to devise an optimal pricing plan which might include third degree price discrimination or bundling. |
Cheating, Plagiarism and Free Rider
The penalties for any form of cheating or plagiarism (whether in exams or project) are severe. Written work submitted must be your own. Any sources of information used in completing your work must be identified. Plagiarized written work will not be accepted and you should be aware that non acceptance of a submission might, in some cases, lead to failure in the course. Since the project is a team work, the final report should identify each student’s contribution. The significant uneven contribution in the work will lead to less mark for the student who made less contribution comparing to his/her team member.