Course Syllabus

C530 Economics for Managers, Fall 2018

Instructor:  Eric Rasmusen, Dan R. and Catherine M. Dalton Professor of Business Economics and Public Policy

Phone:  Office (812) 855-3356. Cell (812) 345-8573.

Email:  erasmuse@indiana.edu, either directly or through Canvas.

Text:  Michael Baye and Jeffrey Prince, Managerial Economics and Business Strategy, 9th ed. McGraw-Hill/Irwin. 

Course Description

       Managers need to make decisions in complex settings that run the gamut from pricing to mergers and acquisitions to entering and leaving markets.  Decisions are often responses to changes in the business environment or to decisions by competitors. In turn, internal decisions will be noticed by competitors and may provoke responses.  Information is key to these decisions, and, in fact, much of the manager’s problem is to know what information to look for.   

     Managerial economics is the branch of economics that focuses on decision making in firms.   It provides powerful tools to aid decision making that are one skill that distinguishes the M.B.A., however inexperienced, from the manager who has just learned on the job. Our task will be to develop familiarity with these tools and acquire the   more subtle ability to apply them to real situations.  

     Economic principles lie behind most business disciplines.  Finance is clearly a branch of economics, though one so important that business schools almost always have more financial economists than all other economists combined.  Accounting makes clever use of economic principles in meeting the challenge of dealing with practical data limitations.  Price setting, often a marketing function, is based on the price theory developed by economists.

     We will spend considerable time, in particular, in learning techniques useful for setting prices. This is often complicated because the optimal price will depend on various kinds of costs, on the demand for the product or service, and on the nature of competition in the particular industry, including how competitors and entrants will react.  The degrees of vertical and horizontal integration in a firm is another important strategic choices for management.  The theory flows from economics. We will study how to evaluate these choices and also investigate how mergers, acquisitions, and divestitures should be valued, since this is the quickest way to change a firm’s degree of horizontal or vertical integration .

Course Structure and Material Coverage

         We will begin with the basic concepts and definitions used in managerial economics. This will give us a common language with which to discuss the subsequent ideas. We will then turn to the study of supply and demand the two forces which determine market prices, and take a look inside the firm. At this point, the emphasis will be on developing the notions of cost minimization, essential if a manager is to pursue the goal of profit maximization.

     We will then turn to a discussion of industry structures. Understanding the structure of their industry is essential for managers.  Strategies that work   in some industries will fail in others. We will discuss various rules of thumb for managers operating under different industry structures.

      Next we take up the study of oligopoly. Many industries are oligopolistic (markets are dominated by a handful of firms) and they are uniquely interesting since the actions and strategies of managers depend on the actions and reactions of individual rival firms, not just of an anonymous market. To fully develop our strategies in an oligopolistic market you will have a short introduction to game theory (one of my own research areas),   a powerful tool in decision making that can be widely applied in daily life, not just at work. 

     Finally, we will look at more complicated selling schemes which substitute for standard unit pricing. In studying all these topics we will use problems and cases to gain practice in using the tools and ideas and online discussions to highlight important points and answer questions.

      Detailed assignments will be provided in the weekly modules. These assignments are aimed at helping you deal with the mathematical aspects of managerial economics and they help reinforce the basic concepts.

      We will need to develop the practical aspects of economics.  Economic theory, more than most business subjects, is useless even if you know the math and diagrams if you can’t tell when to apply it. To this end, several articles from publications such as The Wall Street Journal will be posted that highlight the concepts of the topic area we are studying in each particular week. I will post one or two questions in a discussion forum to get discussion going, but it is your input—questions, background, explanation, and argument--- that is the key to a productive forum.  The intention of the weekly discussions is to talk about the practical and “philosophical” aspects of the course material. Feel free to post whatever thoughts you have on the week's material. You can start your own topics, ask questions, pull in other outside articles, and comment from personal or professional experience)--- and then everyone will build off each others’ thoughts. Don’t be reluctant to speculate when you aren’t sure--- we can learn from each others’ wrong thoughts too, and often those are even better for discussion.  

Schedule

Week 1— Introduction

Week 2 –  The fundamentals of managerial economics (Baye and  Prince,  Chap. 1)

Week 3 –  Market forces, demand and supply (Baye and Prince, Chap. 2)

Week 4 – Quantitative demand analysis (Baye and Prince, Chap. 3)

Week 5 –  The production process and costs (Baye and Prince, Chap. 5) 

Week 6 – The nature of industry (Baye and Prince, Chap. 7)

Week 7 –  Review and midterm exam.

Week 8 –  Managing in competitive and monopolistic markets (Baye and Prince, Chap. 8)

Week 9 –  Basic oligopoly models (Baye and Prince, Chap. 9)

Week 10 –Game theory: inside oligopoly (Baye and Prince, Chap. 10)

Week 11 – Pricing strategies for firms with market power (Baye and Prince, Chap. 11)

Week 12 – Review and final exam

Course Requirements

     Your progress will be assessed through your regular participation in the weekly online discussion forums, your performance on the weekly group memo assignments, and the midterm and final examations. The weights and descriptions of each graded component are as follows:

Weekly Discussion Forums (10%)

     Each week I will kick off a new discussion thread on a news article relevant to the week’s material. The intention of these discussions will be to give exposure to the practical (and somewhat more philosophical) aspects of the course material. Please wait until I have opened the discussion with an initial post before posting your thoughts. Once the discussion is opened you will be expected to talk about the article and its applications throughout the week. I will point the discussion in different directions over the course of the week, but I hope the class’s postings will contribute the majority of analysis of the article. You are expected to regularly participate each week by contributing your own thoughts on the discussion topics. Also, you are encouraged to start your own discussion topics within the threads whenever you can). The discussion will stay open from Monday to the following Sunday each week, so that each of you can find some time into your schedule to get into the discussion.

Weekly Team Memo Assignments (30%)

     At the beginning of the semester, assignment teams of four to five members will be formed and these teams will be used throughout the quarter. Each week there will be an applied business problem to be solved by each team. You will communicate with your team members, solve the problem set and submit your assignment as a team.  Only one member of the team needs to submit the team’s finished assignment, and that can be done through Canvas at the listing for the assignment. The assignments are due each week by 11:59pm EST on Sunday.  These assignments are intended to reinforce the major concepts of the class material and help you gain exposure to the applied aspects of managerial economics.

     At the end of the course, you will peer-evaluate your assignment team members.  I will ask that each team member send me an email rating his other team members’ performance  (this will be kept completely confidential).   You will assign each group member a score of zero to one hundred to  represents the percent of effort you think your team members put forth, given the expectations you had for them based on your knowledge of their abilities and circumstances.. A score of 100 shows that the group member completely lived up to your expectations. The rating of each team member derived from the average rating of his  team membersthe team  will be recorded in the gradebook as the ninth weekly assignment score out of 10 points. If a  member averages 70 percent form his fellow members, the ninth weekly assignment will be 7 out of 10.  If you are happy with all team members’ contributions, you do not need to send me a peer review.  I will treat nonresponse as contentment.

The Midterm Examination (30%)

     The midterm exam will occur in week 7 and will consist of a series of multiple choice questions and essay questions. The exam will test you on your knowledge of the material covered in weeks 1-6, and will be completed on an individual basis.

The Final Examination (30%)

     The final examination will occur in week 12 of the quarter and will consist of multiple choice and essay questions. The examination will test you on your knowledge of the material covered in weeks 8 to 11, and will be completed on an individual basis.

Grading Policy

     I will follow the Kelley School of Business MBA Grading Policy

Study Suggestions

     People learn in various ways and the best approach for one student may not be the best for another. Let me suggest a strategy that seems good to me. Try it and then modify it to suit your own learning style.  One thing I will emphasize for everybody: economics is not a good study-alone topic.  Use our various electronic resources to “talk” with each other. You can do the assignments in various orders, but here is one possibility. 

1. Start by looking over the weekly overview as it will tell you the relevant chapter to read and give you a general idea of the topics to be covered.  

2. Go over the assigned reading.

3. At this point you might want to look at the powerpoint slides I post for the video sessions. 

4. Watch any pre-recorded videos. 

5. Work the problems without looking at the solutions. Check back to the readings and slides as needed to solve the problems. The Zoom videos may be helpful too. 

6. Look at the solutions and make sure you understand any mistakes you made. E-mail any questions to me or to fellow students, or both.

7. Monitor the online discussion and contribute to it.

8. Review the reading and slides in light of the problem solutions and online discussion.

9. Take the online self-test quizzes.

     You can choose how your group will organize doing the memo assignments each week depending on your schedules.