Managerial Economics

Managerial economics is concerned with the application of economic concepts and principles to managerial decision making problems. The course begins with a review of economic models and the basics of marginal analysis. This is followed by a review of the theory of the consumer and the firm.

This introductory discussion is followed by a discussion of several mathematical tools that can be used to assist managerial decision making. These tools include linear programming and regression analysis. The primary focus is on the application of these tools to managerial problems. Alternative forecasting techniques are examined and compared.

Prerequisite: Eco 101, 200
 

 

Managerial Economics
Eco302
<<Spring 2007>>

S. Atri                                                                               Office Hours:
Mahar 431A                                                                      W: 3:00 - 4:30 PM                Phone: (315) 312-3954                                                       T,TH: 11:00 - 12:15
Email: atri@oswego.edu                                                    and by appointment

Syllabus

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, production and cost analysis under different market conditions, and decision-making under uncertainty. 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. Managerial economics is an applied quantitative course in which managerial problems are studied and analyzed (and in many cases solved) in the context of microeconomic models. Our tools of analysis in this course include graphs, diagrams, and mathematical expressions and equations.

Course Objectives
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. The course will sharpen the analytical skills of the students 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.

Required Textbook
Mark Hirschey, Fundamental of Managerial Economics, 8th Edition, Thomson South-Western: 2006

Course Outline
Orientation
What is Managerial Economics?
The Economic Function of a Firm
The Role of Profits
The Theory of the Firm and its Limitation
Optimization
Value Maximization
 Marginal Analysis
Use of Graphs
Profit Maximization vs. Value Maximization

Demand and Supply
Demand and its Determinants
Supply and its Determinants
Market Equilibrium
Elasticity

Statistical Estimations
A Review of Some Basic Statistics
Regression Analysis
Evaluating Regression Results
Estimating Elasticity

Production and Economics of the Firm
Production Function
Law of Diminishing Returns to a Factor
Optimization in the Case of a Single Input
Optimization in the Case of Multiple Inputs
Isoquants and Isocosts
Optimal Combination of Inputs
Expansion Path and Returns to Scale

Cost Analysis
The Concept of Opportunity cost
Explicit and Implicit Costs
Sunk Costs
Short-Run Cost Analysis
Long-Run Cost Analysis
Optimal Plant Size and Transportation Costs
Learning Curves
Scale and Scope Economies
A Firmís Break-Even Volume and Operating Leverage: A simple Analysis

Market Structure: Perfect Competition
Competitive Markets
Profit Maximization under Competitive Conditions in the Shot Run
Market Supply in a Competitive Market
Profit under Competitive Conditions
Efficiency and Competitive Markets
Markets and Government Policy

Market Structure: Imperfect Competition: Monopoly and Monopsony
The Characteristics of Monopoly Markets
Types of Monopolies
Natural Monopolies
Social Costs and Benefits of Monopolies
Antitrust Laws

Market Structure: Monopolistic Competition and Oligopoly
The characteristics of Monopolistically Competitive Markets
Equilibrium and Efficiency in Monopolistically Competitive Markets
Oligopolies and their Characteristics
Oligopoly Models
Duopolies
Game Theory: The Prisonerís Dilemma Model
Cartels
Concentration Ratios

Pricing Practices
Marginal Cost Pricing
Pricing in Imperfectly competitive Markets
Markup Pricing
Price Discrimination
Transfer Pricing

EVALUATION METHODS
The will be two scheduled exams as follows:
 
 
 
 
 
Scheduled Tests 
Date 
Planned Coverage 
Weight (%)
Test I
Thursday, Feb 15
Chapters 1-2, 3
15
Test II 
Thursday, March 15 
Chapters 3, 4,5, 7
30
Final Exam 
Thursday, May 17
(10:30 AM-12:30PM)
Chapter 7,8,10-14
40

In addition to the above exams students will be given regular quizzes and/or homework assignments. Quizzes and homework assignments carry a total of 15 points which will be added to the points obtained from the schedules tests.

Note: Students who have a disabling condition which might interfere with their ability to carry out the course requirements are encouraged to speak, confidentially, to the class instructor, or to contact the Office of Disability Services

ATTENDANCE POLICY
Students are strongly urged to attend classes regularly and keep up with the course coverage and other assignments. Excessive absences could have an adverse effect on one's grade. Make-up tests are given only when a student misses a test as a result of professionally diagnosed and treated illness and other verified extenuating circumstances. Make-up tests may or may not have the same format as the scheduled tests. There will be no makeups for missed quizzes.

A FEW WORDS ABOUT MY THOUGHTS AND MY PLANS FOR THE COURSE

Learning is a dynamic process that starts at birth and continues throughout one's life. College education is simply a brief part of that process. Every one of you comes into this course with a body of knowledge that could (and should) be used as a foundation for the new information that you will acquire in the course. Most of the economic and managerial issues discussed in this course have to do with familiar topics, especially for those of you who have already taken courses in business and economics. In fact, even those who have not had any formal training in economics or business will find the issues addressed in the course rather common. We should try to capitalize on that. For most people it is much easier to understand and learn new information if it can be linked to what they already know. This principle is the basis of my teaching philosophy and I suggest that you make it the foundation of your approach to learning. I always attempt to design my lectures in such a way that they be complementary to the material in the textbook. Thus it is essential that you read and use the relevant chapters in the textbook in conjunction with the class notes.
 

How to Study Managerial Economics

This is an introductory course in managerial economics with limited goals. It is by no means comprehensive. We will not be able to even cover all of the chapters in the textbook. We will still try to make good use of what we learn in the way of application. We shall study most topics from the perspective of a business firm whose managers' primary objective, we assume, is to maximize its value. This is the core theme of the course that should be kept in mind throughout the course.

Economics is nothing more than a chain (or a network) of logical inferences based on factual observations packaged in what we call economic models. Economic models are simplified pictures of the "real" world. That makes our job somewhat easy because most of us are already familiar with many economic facts and, in fact, we even practice them. What makes economics difficult is keeping track of the interactions among economic actors (consumers, investors, business firms, governments, etc.) and understanding their consequences. That is why we need economic models that are abstract pictures of the reality. Economic models allow us to see and understand the fundamentals of economic relationships more clearly. These relationships are not always easily observable in the complex context of the real world.

As mentioned earlier, we will try to wrap most of our discussions around the main theme of the course; that is decision making based on the objective of value maximization. I will remind you of this theme in beginning of most lectures and try to build upon that as well as other relevant information covered in earlier lectures. Before you start learning the details of each new topic, be sure to think about and understand the relevance of it to the main theme of the course and its possible connection to the material you have studied and learned earlier. In that way you will be able to anchor the new information to what you already know. Never study mechanically or try to memorize the material. Take notes while you are reading, pause and think about the key concepts, and try to recall the important points of each section and their relevance after you have completed the section.

College Policy on Intellectual Integrity

Intellectual integrity on the part of all students is basic to individual  growth and development through college course work. When academic dishonesty occurs, the teaching/learning climate is seriously undermined and student
growth and development are impeded. For these reasons, any form of  intellectual dishonesty is a serious concern and is therefore prohibited.

The full intellectual integrity policy can be found at
http://www.oswego.edu/administration/registrar/policy_text.html#cpii

Economics Department

SUNY-Oswego
Oswego, NY 13126