ECN4751, MANAGERIAL ECONOMICS

Dr. ALI R. MOSHTAGH

2371 COLEMAN HALL

(217) 581 - 2916

DEPARTMENT OF ECONOMICS

amoshtagh@eiu.edu

OFFICE HOURS: 11:00 - 11:50 am MWF, 8:30 - 9:20 am TR

COURSE DESCRIPTION:

The application of economic theory and method to managerial decision making.

COURSE OUTLINE:

A. INTRODUCTION

• What is Managerial Economics?
• The Economics of Effective Management
• The Time Value of Money
• The Cost - Benefit Analysis
• Learning Managerial Economics
  

B. Market Forces: Demand and Supply

• Demand
  • Demand Shifters
  • The Demand Function
  • Consumer Surplus
• Supply
  • Supply Shifters
  • The Supply Function
  • Producer Surplus
• Market Equilibrium
  
  • Price Ceilings
  • Price Floors
• Comparative Static Analysis
  • Changes in Demand
  • Changes in Supply

C. Quantitative Demand Analysis

• The Elasticity Concept
  • Own Price Elasticity of Demand
    • Elasticity and Total Revenue
    • Factors Affecting the Own Price Elasticity of Demand
    • Marginal Revenue and the Own Price Elasticity of Demand
  • Cross-Price Elasticity
  • Income Elasticity
• Obtaining Elasticities from Demand Functions
  • Elasticities from Linear Demand Functions
  • Elasticities from Nonlinear Demand Functions
• Regression Analysis

D. The Theory of Individual Behavior

• The Ordinal Theory of Consumer Choice
  • Assumptions
  • Indifference Curves
  • Constraints
  • Consumer Equilibrium
• Comparative Statics
  • Price Changes and Consumer Behavior
  • Income Changes and Consumer Behavior
    
• Applications of Indifference Curve Analysis
• Choices by Workers and Managers
• Indifference Curves and Demand Curves
• Rules for Differentiating Univariate Functions
  

E. The Production Process and Costs

• The Production Function
• The Role of the Manager in the Production Function
• The Algebra of Production
• Production with Two Variable Inputs
• The Cost Function
• Algebraic Forms of Cost Functions
• Economies of Scale
• Multiple-Output Cost Functions

F. The Organization of the Firm

• Methods of Procuring Inputs
• Transaction Costs
• Optimal Input Procurment
• Managerial Compensation and the Principal-Agent Problem
• Forces that Discipline Managers
• The Manager-Worker Principal-Agent Problem

G. The Nature of Industry

• Market Structure
  • Number and Relative Size of Firms
  • Demand and Market Conditions
  • Barriers to Entry
• Conduct
  • Pricing Behavior
  • Integration and Merger Activity
  • Research and Development
  • Advertising
• Performance
  • Profits
  • Social Welfare
• The Structure-Conduct-Performance Paradigm

H. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

• Perfect Competition
  • Short-Run Output Decisions
  • Long-Run Output Decisions
• Monopoly
  • Monopoly Power
  • Maximizing Profits
  • Implications of Entry Barriers
• Monopolistic Competition
  • Conditions for Monopolistic Competition
  • Profit Maximization in the Short-Run
  • Profit Maximization in the Long-Run
• Optimal Advertising Decisions

I. Basic Oligopoly Models

• Conditions for Oligopoly
• The Role of Beliefs and Stratigic Interaction
  • Sweezy Oligopoly
  • Cournot Oligopoly
  • Stackelberg Oligopoly
  • Bertrand Oligopoly
• Comparing Oligopoly Models
• Contestable Markets

J. Game-Theory: Inside Oligopoly

• Overview of Games and Strategic Thinking
• Simultaneous-Move, One-Shot Games
  • Strategy
  • Normal-Form Game
• Infinitely Repeated Games
• Finitely Repeated Games
• Multistage Games

K. Pricing Strategies for Firms with Market Power

• Basic Pricing Strategies
  • The Basic Rule of Profit Maximization
  • A Simple Pricing Rule for Monopoly and Monopolistic Competition
  • A Simple Pricing Rule for Cournot Oligopoly
• Strategies that Yield Even Greater Profits
  • Price Discrimination
  • Two-Part Pricing
  • Block Pricing
  • Commodity Bundling
• Pricing Strategies for Special Cost and Demand Structure
  • Peak-Load Pricing
  • Cross-Subsidies
  • Transfer Pricing
• Pricing Strategies in Markets with Intense Price Competition
  • Price Matching
  • Randomized Pricing

L. The Economics of Information

• The Mean and the Variance
• Uncertainty and Consumer Behavior
  • Risk Aversion
  • Consumer Search
• Uncertainty and the Firm
  • Risk Aversion
  • Producer Search
  • Profit Maximization
• Uncertainty and the Market
  • Asymmetric Information
    • Adverse Selection
    • Moral Hazard
  • Signaling and Screening
  • Auctions
    • English Auction
    • First-Price, Sealed-Bid Auction
    • Second-Price, Sealed-Bid Auction
    • Dutch Auction
  • Information Structures
  • Optimal Bidding Strategies for Risk-Neutral Bidders
  • Expected Revenues in Alternative Types of Auctions

M. Advanced Topics in Business Strategy

• Limit Pricing
• Linking the Preentry Price to Postentry Profits
• Dynamic Considerations
• Predatory Pricing
• Raising Rivals' Costs to Lessen Competition
• Price Discrimination as a Stratigic Tool
• Changing the Timing of Decisions or the Order of Moves
• Penetration Pricing to Overcome Network Effects

N. A Manager's Guide to Government in the Marketplace

• Market Failure
  • Market Power
  • Externalities
  • Public Goods
  • Incomplete Information
  • Rent Seeking
• Government Policy and International Markets
  • Quotas
  • Tariffs

TEXTBOOK:

Michael R. Baye, Managerial Economics and Business Strategy, Sixth Edition, McGraw-Hill Irwin, New York, NY, 2009.

YOU MUST BRING YOUR BOOKS TO CLASS. PLEASE!

GRADE POLICY:

Your grades will be based on the accumulated total of your scores on the following:

2 EXAMs @ 100 Points Each, 200 Points

Assignments ( In-Class Only ): 30 Points

FINAL EXAM: 100 Points

Final Exam: Monday, 10 December, 2012, 10:15 am - 12:15 pm

TOTAL 330 Points

Graduate students taking this course for graduate credit must conduct a research project on a topic related to managerial economics. The final written report of this research project is worth up to 50 points.

NOTE 1:

No EXAM grades will be eliminated. No EXAMs will be made up unless proper arrangements have been made prior to the scheduled EXAM date. Messages left on my voice mail will not be considered as proper arrangements.

NOTE 2:

If you have a documented disability and wish to receive academic accommodations, please contact the Coordinator of the Office of Disability Services (581-6583) as soon as possible.

NOTE 3:

"Each faculty member has the authority to establish the conditions for student cell phone use in his/her classroom. These conditions are at the discretion of the faculty member, but will provide that a university-initiated campus security text message can be received and disseminated to those in the classroom in a timly manner." Eastern position on cell phones in classrooms.

My position on cell phones: there is absolutely NO TEXTING allowed in class, you may NOT hold your cell phones in your hands in class, and you may NOT use your cell phones as calculators during exams.

SPECIAL DATES IN THE FALL TERM 2012 CALENDAR

Classes Begin: August 20, 2012

Last Day to Drop a Course With No Grade: August 31

W for Course Withdrawal Beings: September 1

Labor Day Observance-No Classes: September 3

Fall Break: October 5

Mid Term: October 10

Last Day to Withdraw from a Course or University with W: November 2

Thanksgiving Break: November 19 - 23

Last Class Day: December 7

Final Examinations: December 10 - 14

Deadline to Return Books/TRS/No Fine 3 p.m.: December 14

Commencement: December 15