Managerial Economics MGCR 293-005 (Fall 2015) Instructor: Tariq Nizami Email: tariq.nizami@mcgill.ca Time: Monday & Wednesday 1:05 PM 2:25 PM Location: BRONF 422 Office Hours: Monday & Wednesday 2:30 to 3:30 PM Office: BRONF 236 Course Description This is an introductory course in Managerial Economics. Managerial Economics is the application of microeconomic theory and methodologies to managerial decision making problems within different organizations such as a firm or a government agency. It covers the basic theory of individual economic units the microeconomic level (individual markets, individual consumers, individual firms) and some analysis tools of decision science to examine, the choices that individuals face, how markets respond to these choices, and when/how government intervention may or may not be desirable. The emphasis in this course will be on demand analysis, production theory, cost analysis and decision-making under uncertainty in different market structures. Basic 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. The tools of analysis used in this course include graphs, diagrams, and mathematical expressions and equations. Course Objectives 1. Provide students with a basic understanding of the economic theory and analytical tools that can be used in decision-making problems. 2. Introduce the fundamentals of micro economic theory and practice as they are applied to business and non-business organizations in a managerial context. 3. Enhance the student s basic concepts, analytical skills, insights and managerial decision-making tools required for sound business decisions. 4. Provide intuitive guide to marginal analysis and basic economic relations. 5. Make students better decision-makers in a business or institutional setting. Course Outline Managerial Economics (MGCR 293) Page 1 of 5
Learning Outcomes 1. Basic knowledge of the external environment of the firm Upon successful completion of this course, the student should be able to: List the different goals and constraints that firms face and use the theory of the firm to model business organizations Understand the basic tools of supply and demand Apply demand theory to establish the elasticity of demand Apply production theory to manage production Understand the vital relationship between productivity (efficiency) and unit cost Understand how costs are determined and how to differentiate between fixed and variable costs Understand cost theory to establish short and long run behavior Describe market structures to establish market equilibrium Make decisions in different market structures and evaluate the performance of the firm Understand how prices are determined in the short-run and long-run Understand game theory to decide on strategies Understand the implications of government action on managerial behavior 2. Applying Managerial Decision Making Tools Upon successful completion of this course students should be able to: Use algebraic equations and graphs to determine the equilibrium price and quantity exchanged Use marginal analysis, derivatives to maximize a function such as profit or minimize one such as cost, and use constrained optimization Estimate the price, income and cross elasticity of demand for a product and how to apply the information Determine the break/even point for a new product, store, market Display data by creating tables, graphs and equations Determine the optimal price to maximize short-run profit Minimize your losses in the short-run and when is the time to shut-down operations Evaluate the economic profitability of the firm using constrained optimization Grading Scheme The grading scheme is as follows: 1. Assignments & Topic Presentation 20% 2. Mid-term 30% 3. Final Exam 50% Total 100% 1. Assignments & Topic Presentation Students are required to complete two (2) individual assignments and a group assignment designed to cover all the material learned in each of the two parts of the course and provide opportunities for formative assessment and learning. Assignments are designed to provide the student with the opportunity to apply the concepts, insights, techniques and tools in a problem solving context and to assess their understanding of the basic body of knowledge and ability to think, problem solve and apply appropriately the tools acquired. Course Outline Managerial Economics (MGCR 293) Page 2 of 5
Several assignments & presentation topics will be distributed throughout the course. Assignment 1 This assignment has to be handed in by Monday, 2, 2015. No late assignments will be accepted. Assignments must be hand written. Chapter 1 Questions 5, 7, 8 Chapter 18 Questions 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 Chapter 2 Questions 1, 2, 3, 4, 5 Chapter 3 Questions 5, 6, 8, 11 Chapter 5 Questions 1, 6 Assignment 2 This assignment has to be handed in on the last day of classes. No late assignments will be accepted. Assignments must be hand written. Chapter 5 Questions 1, 6 Chapter 6 Questions 3, 4, 5, 6, 9, 10, 11, 12 Chapter 7 Questions 1, 2, 3, 4, 5, 6 Chapter 8 Questions 1, 3, 11 Chapter 9 Questions 2, 3 Chapter 10 Questions 1, 2, 3 Chapter 11 Questions 1, 2, 4, 7 2. Mid-term exam (1hour 30 minutes closed book) There will be a one and a half hour (1.5) mid-term exam covering chapters 1, 18, 2, 3 & 5. The midterm exam is multiple-choice questions designed to assess the student s knowledge and understanding of the material. 3. Final exam (3-hour closed book) A three-hour final exam will be held during the final examination period. The final exam is broken down into two parts: Multiple-choice questions designed to assess the student s knowledge and understanding of the material and a problem part designed to assess the student s ability to apply the tools. Each part is approximately 50%. These are closed book examinations no texts or notes are allowed in the exams. Teaching Methods: Class sessions consists of a mixture of lectures, interactive discussions, case studies, case presentations, and problem solving. Each session outlines the application of economic principles and theories related to managerial issues, through lectures and interactive discussions, presenting cases, discussing cases in addition to solving economic problems. The primary method of instruction is class lectures due to the large body of knowledge that needs to be transmitted to the student. The instructor develops all illustrations and derives all solutions on a step-by-step, sequential, methodical and developmental way on the blackboard and overhead slides to help the student see the logic and grasp the building blocks. Nevertheless, some time is devoted to problem-solving exercises and applications, case studies and interactive class discussions on current economic topics. Course Outline Managerial Economics (MGCR 293) Page 3 of 5
Required Text Managerial Economics: Theory, Applications, and Cases, 8 th edition, by, Allen, Weigelt, Doherty & Mansfield(Custom Edition Mcgill University) Publisher: W. W. Norton & Company, New York (ISBN: 0-393-90560-1). Supplementary Textbooks: 1. Bade, Parkin, (2012) Microeconomics: Canada in the Global Environment, 8 th edition, Prentice Hall. Course Policies Assignment deadlines: Students will be advised of any changes made to the course. All efforts are made to manage the course as stated. All students must submit their assignments on time. Failure to do so will result in a penalty. Right to submit in English or French written work that is to be graded: In accord with McGill University s Charter of Students Rights, students in this course have the right to submit in English or in French any written work that is to be graded. This right applies to all written work that is to be graded, from one-word answers to dissertations. Academic Integrity statement: McGill University values academic integrity. Therefore all students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Code of Student Conduct and Disciplinary Procedures (see www.mcgill.ca/students/srr/honest/ for more information). Tutorial & TA TA: TBA. The tutorials are scheduled each week on Fridays. The time and room is to be announced. The tutorials are very useful in providing further clarifications and understanding of the material taught. Course Outline Managerial Economics (MGCR 293) Page 4 of 5
Course Schedule Fall 2015 Week # Lecture Topics Text Chapter & Readings 1 4 & 9 2 14 & 16 3 21 & 23 4 / 28 & 30 5 5 & 7 6 14 & 19 7 21 & 26 8 28 2 Introduction to Managerial Economics Firm and its Goals Reading: Chapter1 Optimization Techniques Reading: Chapter 18 (Omit Lagrangian Multipliers p 754-756) Review of Mathematical Concepts used in Managerial Economics Demand Theory Reading Chapter 2 (Omit Constant-Elasticity Demand Function p 59-60) Elasticity and Importance of Price Elasticity of Demand Consumer Behavior and Rational Choice Reading: Chapter 3 Production Theory Reading: Chapter 5 Production Theory Reading: Chapter 5 The Analysis of Costs Theory and Estimation of Costs Perfect Competition Pricing and Output Decision: Perfect Competition, Reading Chapter 6 Reading: Chapter 7 Assignment 1 Due Date 2, 2015 9 MIDTERM EXAM 6 4 & 9 10 11 & 16 11 18 & 23 12 25 & 30 13 December 2 & 7 MIDTERM EXAM, Friday, 6, 2015. 12:00 pm to 2:00 pm Monopoly & Monopolistic Competition Pricing and Output Decision: Perfect Competition, Monopoly, Monopolistic Competition The Managerial Use of Price Discrimination Special Pricing Practices Bundling & Intra firm Pricing Special Pricing Pr actices: Oligopoly Pricing and Output Decision Game Theory Strategic Decisions Midterm covers Chapters 1,18, 2, 3 & 5 Reading: Chapter 8 Reading: Chapter 9 Reading: Chapter 10 Reading: Chapter 11 Reading: Chapter 12 All changes to this outline will be notified in the class Course Outline Managerial Economics (MGCR 293) Page 5 of 5