Managerial Economics

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Managerial Economics
Professor Changqi Wu
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Oil Reserves
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Oil Crisis?

• The proven crude oil reserves 1,028,500,000,000
  barrels.
• International Energy Agency estimates the global
  crude oil production in 2005 is 84,700,000
  barrels a day.
• Question 1
• How many barrels of crude oil will be produced in
  the year of 2005?
• Question 2
• How many years does the crude oil reserve on
  earth can last?

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Topics

• Introduction to managerial economics
• Course organization

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1. Introduction

• Methodology of economic analysis
• Scope of managerial economics
• Major themes

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1.1. Economic Analysis

• How to allocate scarce resources to achieve
  desirable outcome
• Economic agents are rational
• able to make decisions (choices) to advance their
  own interests
• responsive to incentives
• Assumption or reality?

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Microeconomics is...

• To study the behavior of individual economic
  agents
• Examples
• pricing mobile phone services
• investment decision of internet startups
• decision to falling asleep

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Why Going to Sleep?
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Macroeconomics is ...

• To study the structure and fluctuation of an
  economy and government policies that influence
  the performance of the economy
• Macroeconomic issues
• Why do some nations grow faster than others?
• Should China revalue its currency?
• Does governments stimulate package help economic
  growth?

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Economic Growth in the Long Run
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Predicting the Future Economic Power
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1.2. Methodology

• Economists use economic models to define
  relationship between the actions of economic
  agents and the outcomes.
• Harvard school versus Chicago school
• Analysis of an economic model can reveal
  relationship between two factors otherwise
  difficult to see.
• Partial analysis assumes all other things remain
  unchanged

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Economics in Action

• Predicting the closing level of Hang Seng Stock
  Index
• Hemline index
• Investing by the moon
• Economic analysis reveals the causal relationship
  between actions and outcomes.

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Hem-line Index
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The Marketplace

• Many buyers and sellers transact their goods and
  services
• All transactions are voluntary
• Price reflects both demand and supply conditions
• The invisible hand

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The Market Mechanism
Price ( per unit)
Quantity
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1.3. Managerial Economics

• Managerial economics applies the tools of
  microeconomic analysis to managerial and business
  issues
• How to assess the market potential?
• Which market to enter?
• How to compete in marketplace?
• How to motivate employees to do or not to do
  certain things?

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Major Themes of the Course

• Market mechanism
• Demand and supply analysis
• Market structure and imperfect competition
• Managing in imperfect markets

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2. Course Organization

• Objectives
• Classroom protocol
• Grading
• Textbook

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2.1. Course Objectives

• Conceptual knowledge
• Skills
• Analytical techniques

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Course Objectives Conceptual Knowledge
By the time you finish the course, you will ...

• be able to understand the key concepts useful in
  analyzing the factors that shape the outcome of
  the market competition.
• be able to diagnose sources of economies of scale
  and scope, and to understand how they shape the
  structure of a market.
• be able to assess, how much of the value a
  business unit creates and how the owners will
  be able to capture it in the form of economic
  profitability.
• be able to characterize a business units
  competitive position and to formulate intelligent
  options for improving that position.

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Course Objectives Skills
By the time you finish this course, you will
have developed skills in ...

• identifying managerial issues.
• formulating options to deal with those issues.
• forming robust and sensible intuitions about what
  issues are likely to be important in different
  business situations.

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Course Objectives Analytical Techniques
During the course, you will learn several
specific analytical techniques including ...

• marginal analysis
• estimation and forecasting
• value-added analysis

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2.2 Classroom Protocol Responsibilities and
Expectations

• The classroom environment should approximate
  that of a professional meeting. This imposes
  responsibilities on me and on you
• Punctuality
• Preparation
• Listening
• Attendance

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Punctuality

• My responsibility I will always be on time for
  class and will be ready to begin teaching on
  time.
• My expectation I expect you to show the same
  punctuality by being in your seats by the
  beginning of the class and returning to your
  seats after break.

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Preparation

• My responsibility I will always be prepared to
  teach the material I assign for the day and will
  have spent many hours thoroughly preparing for
  lectures.
• My expectation I expect that you will prepare
  seriously for the class and will participate in a
  serious, constructive way in class discussion.

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Listening

• My responsibility I will listen carefully when
  you participate, and I will make every effort to
  call on students who wish to participate.
• My expectation I expect that you will refrain
  from side conversations during class and turn off
  your mobile phones which disrupt and distract
  others who are trying to learn.

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Grading Class Participation

• Attendance is compulsory. Absence from class
  without good reason is subject to punishment.
• Points Action
• 2 Raise right questions and help the class
  moving. Make comments with supporting evidence
  and with well-argued logic.
• 1 Attend but not active in participating class
  discussion.
• 0 Not attend class

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Teams

• Teams are working units for assignments and case
  projects
• Team size should be limited to 4-5 members

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2.3 Grading

• Homework and case studies 30
• Class attendance and participation 20
• Final exam 50

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Textbook

• Ivan Png Managerial Economics
• Other available managerial economics/microeconomic
  s textbooks, for instance Robert Pindyck and
  Daniel Rubinfeld Microeconomics
• A package of readings and cases.

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Key Dates

• The start of the class September 3, 2005
• The national day, October 1 regular class.
• The written test October 22.