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Home , Managerial economics

Economics Concepts for Managers COURSE SYLLABUS

UNIVERSITY OF MASSACHUSETTS DARTMOUTH

Charlton College of Business Department of Accounting and Finance Summer 2017

Instructor: Gopala Vasudevan Office: Email:[email protected] 317 Charlton Building (508) 999-8426 (office)

Course: FIN 500, Economic Concepts for Office Hours: Online and Email. Managers Section 7101

COURSE DESCRIPTION

This is taught as an online course. All lecture materials, syllabi will be posted on MYCOURSES which is the website of the University. All assignments and exams will be posted on CONNECT which is a subscription based website hosted by McGrawHill. Please make sure that you set up your account with CONNECT as soon as possible. The first two weeks is generally complimentary and you should not wait to start the assignments posted on CONNECT. Assignments and Exams will not be reopened past the due date. Regular Assignments are due on Sunday. Practice Assignments are due on Friday. Practice Assignments will also be graded and receive 25% of the grade for that Assignment. Regular Assignments will receive 100% of the points for the assignment.

Economics concepts for managers focuses on microeconomic analysis and its application to business decision making. We study how to direct scarce resources in the way that most efficiently achieves managerial goals. The course develops the tools of intermediate , business, and policy analysis. Specific topics includes demand and supply, basic , individual behavior, , , , the nature of an industry, models, of information, and public policy toward business. The basic analytical techniques of managerial economics are identifying problems and opportunities, analyzing alternatives, and making optimal choices. These techniques are powerful tools for managers in firms who must make decisions in business functional areas of finance, marketing, productions and accounting. This course goes beyond basic principles course because it concentrates on the applied aspects of intermediate microeconomics and building economic intuition to help managers make sound decisions.

Upon completion of this course the students will have acquired the skills to identify and develop sound solutions for business economic problems in the areas of demand, supply, production, , and . Students will also conduct analytical analysis including economic optimization and to assist them in making decisions using sound economic reasoning.

Students will gain knowledge and understanding of how to a product, benefits of , optimal use of employees and material inputs for production, measuring margin, and business strategies for operating such cost minimization versus profit maximization.

Economics Concepts for Managers SUMMER COURSE SYLLABUS

COURSE MATERIALS: Required Textbook: Managerial Economics & Business Strategy with Connect Plus, 9th Edition Michael Baye & Jeff Prince Hardcover with access card, Required Tools: calculator, pencils, pens, and paper

CORE COMPETENCIES EMPHASIZED

Economic Concepts for Managers stresses the following core competencies: solid foundation in business, critical and analytical thinking, written & oral communication skills, ethics, and understanding-- the Global aspects of business, computer proficiency, understanding and motivation for lifelong learning, entrepreneurship, and knowledge and understanding of the dynamic environment. These competencies are achieved by applying economic theory and methods to business and administrative decision making.

Solid Foundation in Business

The course emphasizes the role of economics in business and administrative decision making. The course is designed to equip students with adequate skills to make management decisions using sound economic reasoning. A key feature in this course is the depiction of the firm as a cohesive, unified organization. The basic valuation model is constructed and used as the underlying of the firm. Each topic in the course is then related to an element of the value maximization model. In this manner, effective management is seen to involve an integration of accounting, finance, marketing, personnel, and production functions.

Analytical Expertise and Skills

The basic analytical techniques of managerial economics are identifying problems and opportunities, analyzing alternatives and making optimal choices. These techniques include reasoning, - based economic optimization, and model predictions which are applied to business decisions in finance, marketing, productions, and accounting.

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COURSE LEARNING GOALS:

The learning goals for Managerial Economics are as follows:

• to develop a clear understanding of economic theory • to acquire a framework for understanding the nature of the firm as an integrated whole • to recognize the interrelationship between the firm and society • The key role of business as an agent of social and economic welfare.

COURSE LEARNING OBJECTIVES

The course is designed to equip students with adequate skills to make management decisions using sound economic reasoning. Students master the following: • the ability to understand economic optimization and its application to business decision making,

• the ability to understand the forces of that establish and quantities observed in the markets for and services,

• the ability to calculate and interpret elasticities and their applications to business decisions,

• the ability to analyze production and cost analysis as a means for understanding the economics of resource allocation and ,

• the ability to understand market structures and how they affect business decisions under perfect

, , and , • the ability to analyze pricing techniques under a variety of demand and cost conditions, and

The ability to analyze data using statistics (e.g., hypothesis testing, regression estimation and correlations) in order to make sound business decisions

GRADING POLICY Evaluation will be based entirely upon performance on tests, quizzes, project, homework and attendance. The tests will be based on the text, class lectures, and any handout materials. Student responses on the examinations will be graded for content, organization, grammar, and spelling. All assignment will be counted in your grade. There will be no curing or dropping any assignments.

Percent of Grade Mid-Term Exam 35.0% Final Exam 35% Assignments 30% Total 100.0%

Make-up Test Policy: Professor Vasudevan retains complete discretion regarding the policy pertaining to examinations missed by students. In other words, students are not entitled to “make up” a missed examination. An opportunity to make up a missed examination will not be given unless unusual circumstances exist (as determined by the instructor) and only then with advance notice to and permission from the instructor. Each and every student must present satisfactory (as determined by the professor) written documentation of the reason for requesting a make-up opportunity.

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Outline of Topics

Chapter 1: Fundamental of Managerial Economics (6/13-6/18)

I. Introduction A. The Manager B. Economics C. Managerial Economics Defined II. The Economics of Effective Management A. Identify Goals and Constraints B. Recognize the Nature and Importance of Profits 1. Economic Versus Accounting Profits 2. The Role of Profits

3. The Five Forces Framework and Industry Profitability: Entry, Power of Input Suppliers,

Power of Buyers, Industry Rivalry, Substitutes and Complements C. Understand Incentives D. Understand Markets 1. Consumer-Producer Rivalry 2. Consumer-Consumer Rivalry 3. Producer-Producer Rivalry 4. Government and the Market E. Recognize the Time Value of Money 1. Present Value Analysis 2. Present Value of Indefinitely-Lived Assets F. Use Marginal Analysis 1. Discrete Decisions 2. Continuous Decisions 3. Incremental Decisions

Chapter 2: Market Forces: Demand and Supply (6/19-6/25)

I. Introduction II. Demand A. Demand Shifters 1. Income 2. Prices of Related Goods 3. Advertising and Consumer Tastes 4. Population 5. Consumer Expectations 6. Other Factors B. 7. The Demand Function 8. Consumer Surplus

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III. Supply A. Supply Shifters 1. Input Prices 2. Technology or Government Regulations 3. Number of Firms 4. Substitutes in Production 5. Taxes 6. Producer Expectations B. IV. Market Equilibrium V. Price Restrictions and Market Equilibrium A. Price Ceilings B. Price Floors VI. Comparative Statics A. Changes in Demand B. Changes in Supply C. Simultaneous Shifts in Supply and Demand

Chapter 3: Quantitative Demand Analysis (6/19-6/25)

I. Introduction

II. The Concept

III. Own Price Elasticity of Demand A. Elasticity and Total Revenue

B. Factors Affecting the Own Price Elasticity 1. Available Substitutes

2. Time

3. Expenditure Share

C. Marginal Revenue and the Own Price Elasticity of Demand IV. Cross-Price Elasticity

V. Income Elasticity

VI. Other Elasticities

VII. Obtaining Elasticities from Demand Functions A. Elasticities for Linear Demand Functions B. Elasticities for Nonlinear Demand Functions

VIII. Regression Analysis

A. Evaluating the Statistical Significance of Estimated Coefficients: Confidence Intervals & The t-

Statistic B. Evaluating the Overall Fit of the Regression Line: The R-Square & The F-Statistic C. Nonlinear and Multiple Regressions: Nonlinear Regressions & Multiple Regression D. A Caveat IX. Answering the Headline

.

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ONLINE EXAM 1: Chapters 1-3 DATE: (6/25)

Chapter 5: The Production Process and Costs (6/26-7/2)

I. Introduction II. The Production Function A. Short-Run Versus Long-Run Decisions B. Measures of : Total Product, Average Product & Marginal Product C. The Role of the Manager in the Production Process: Produce on the Production Function & Use the Right Level of Inputs D. Algebraic Forms of Production Functions E. Algebraic Measures of Productivity F. Isoquants G. Isocosts H. Cost Minimization I. Optimal Input Substitution III. The Cost Function A. Short-Run Costs B. Average and Marginal Costs C. Relations among Costs D. Fixed and Sunk Costs E. Algebraic Forms of Cost Functions F. Long-Run Costs G. of Scale H. A Reminder: Economic Costs versus Accounting Costs IV. Multiple- Cost Functions A. B. Cost Complementarities V. Answering the Headline Appendix: The Calculus of Production and Costs

A. The Profit-Maximizing Usage of Inputs B. The Slope of an Isoquant C. The Optimal Mix of Inputs D. The Relation between Average and Marginal Costs

Chapter 6: The Organization of the Firm (6/26-7/2)

I. Introduction

II. Methods of Procuring Inputs A. Purchase the Inputs Using Spot Exchange B. Acquire Inputs under a Contract C. Produce the Inputs Internally D. III. Transaction Cost

A. Types of Specialized Investments 1. Site Specificity 2. Physical-Asset Specificity 3. Dedicated Assets 4. B. Implications of Specialized Investments 1. Costly Bargaining 2. Underinvestment 3. Opportunism and the "Hold-Up Problem" 4. IV. Optimal Input Procurement A. Spot Exchange B. Contracts C. Vertical Integration D. The Economic Trade-Off V. Managerial Compensation and the Principal-Agent Problem

VI. Forces that Discipline Managers A. Incentive Contracts B. External Incentives 1. Reputation 2. Takeovers VII. The Manager-Worker Principal-Agent Problem

A. Solutions to the Manager-Worker Principal-Agent Problem 1. Profit Sharing 2. Revenue Sharing 3. Piece Rates 4. Time Clocks and Spot Checks

Chapter 8: Managing Competitive, Monopolistic, and Monopolistically Competitive Markets (7/3-7/9)

I. Introduction II. A. Demand at the Market and the Firm Levels B. Short-Run Output Decisions 1. Maximizing Profits 2. Minimizing Losses: Short-Run Operating Losses & The Decision to Shut Down 3. The Short-Run Firm and Industry Supply Curves C. Long-Run Decisions

III. Monopoly A. Monopoly Power B.

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2. Economies of Scope 3. Cost Complementarities 4. Patents and Other Legal Barriers

D. Implications of Entry Barriers IV. Monopolistic Competition A. Conditions for Monopolistic Competition B. Profit Maximization C. Long-Run Equilibrium

D. Implications of Product Differentiation V. Optimal Advertising Decisions VI. Answering the Headline

Chapter 12: The Economics of Information (7/3-7/9)

A. Strategies to Manage and Uncertainty B. Calculating Profit Maximizing Output and Price under Uncertainty C. Strategies to Mitigate Moral Hazard and Adverse Selection D. Optimal Bidding Strategies in Auctions.

FINAL EXAM: July 13 , 8 AM- 8 PM, Chapters (5,6,8,12)

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